It is common knowledge that the potential of the alt coin market and ethereum is much higher than bitcoin. Even if most of us are long term bitcoin bulls, it is hard to resist the allure of 10x to 100x gains in the alt coin market. As we enter April, ethereum’s $2k resistance level has now turned support and the bitcoin dominance chart is starting to see some reversal, signalling perhaps, the start of Altcoin season.
However, not all alt coins are created equal and having a strategy in place will help to keep us focused on maximising profits. Most experts would advise having at least 50% of your portfolio in bitcoin to minimise volatility (and because, well, bitcoin is the one sure bet of increasing in value over time) and the other half in ethereum and other alt coins. One way to do this is to invest only in large caps, the 10 largest alt coins by market capitalization — I guess this would be considered a very “safe” portfolio. But the allure of finding the next alt coin gem to bring us 1000x gains have many of us looking into the small to medium cap market even going so far as finding coins that are not yet listed on the larger crypto exchanges.
Here lies my dilemma. With hundreds of alt coins to choose from and new ones coming out each day, how do you know which ones have the potential to outpace Bitcoin? One strategy would be to focus on whatever sector is currently “hot”. Sector rotation is a common concept in traditional markets. It is the movement of money invested in stocks from one industry to another as investors and traders anticipate the next stage of the economic cycle. This strategy looks at what sectors are expected to prosper in the coming months and then allocating more financial resources towards these areas.
In the alt coin space, different sectors include decentralised finance (deFi), exchange based tokens, payments, data storage, blockchain protocols, gaming and NFTs, entertainment and so forth. In the last few months we’ve seen a meteoric rise in the NFT space. Coins like Decentraland (MANA), Enjin (ENJ), FLOW, Origin Protocol (OGN) all started to go parabolic in a short amount of time. And even though NFT’s are still hot now, many of the coins are cooling off from their February and March highs. This month I believe we are seeing a sentiment shift to smart contract platforms. We’re finally starting to see life in Ethereum once again and projects like Polkadot (DOT) and Binance (BNB) have been skyrocketing. Even TRON which is notorious in the crypto space has been seeing a lot of movement lately. And If my hunch is right, then other smart contract protocols (ahem… ADA) will soon follow suit with parabolic moves of their own.
Understanding market cycles will help us determine what sector is currently trending. This in turn will help us narrow down our focus in choosing the projects we want to invest in. Instead of sifting through hundreds of coins and data charts, we can simply focus on those coins which meet our criteria. By anticipating the next market cycle, we can adjust our alt coin portfolio to have increased exposure in the sectors we believe have the best return potential. Of course, this is just one strategy amongst many, and at the end of the day it’s most important to understand our own risk tolerance when investing in cryptocurrencies.
Disclaimer: I am not a financial advisor. The ideas presented in this article are personal opinions and for entertainment purposes only. You (and only you) are responsible for the financial decisions that you make. Ideas presented in this article are my opinions at the date of writing and may change in the future.
