Hey guys,
we are happy to publish our third portfolio review.
Before we get started, we would like to remind you, that this review and activity is not financial advice; it is for informational purposes only. And coins mentioned in the review are no indication of our current holdings or opinions towards certain coins.
For our third portfolio review, we decided to look at a portfolio with a value of $7000 currently holding 10 tokens. The person would like to position himself for a possible 10x this upcoming bull run and therefore is willing to take a medium risk level.
Before we get started, what is an medium risk portfolio in our opinion?
For us a medium risk portfolio, is a combination of large-, medium caps and possibly a small proportion of low caps depending on, if the medium risk weights more towards low or high risk. Additionally, a medium risk portfolio shouldn’t cover more than 10–15 tokens, preferably below that as you want to invest in the highest conviction plays with a larger capital while still ensuring diversification.
Hoping that the summary makes sense for you, if not make sure to let us know.
Our approach was as followed, we judged the portfolio on its holdings, diversifications, and its capital allocation. Additionally, we took into consideration the risk level of the individual.
The structure of the review will look as followed:
1. Portfolio Analysis
a. Portfolio Capital Allocation
b. Portfolio Category Capital Allocation
2. Strategy alignment
3. Opportunity for change
Otherwise let’s get started:
Portfolio Analysis
Capital Allocation
The portfolio currently holds 10 tokens with the following allocation:
$ETH 10%, $PRIME 10%, $HMX 10%, $RIO 10%, $ARB 5%, $GNS 5%, $RLB 5%, $SOL 20%, $RNDR 15%, $ROSE 10%
So let’s first talk about the value allocation, considering his strategy, of trying to achieve an overall portfolio growth with a medium risk portfolio, the allocation the ten holdings seem to be picked with consideration by the person. However, when you look at the current market caps, opportunities for the portfolio can be found.
Before we dive into the mcaps, how do we define Low, Medium, High mcaps? We see the market caps the following way considering current market conditions:
Low-Cap (3–20 million)
Mid-Cap (21–50 million)
Large-Cap (>50)
(For Onchain Tokens)
While the definition of market cap sizes can change throughout the cycle, we decided to use the previous listed definition. Considering the graph shown above, we can see that the portfolio is currently heavily allocated into large mcap coins, which in general could provide lower returns to medium mcap tokens as risk in drastically reduced when investing in already established projects.
Even when increasing our range, to perhaps adjust to already listed tokens on multiple exchanges to Low-Cap (3–100 million), Mid-Cap (101–500 million), Large-Cap (>500). Large caps still make up around 50% of the chosen tokens and when adjusted to allocation it increases to 55%.
Considering our definition of a medium risk portfolio, this portfolio is in our opinion is to heavily allocated into large caps and therefore representing more of a Low risk portfolio, thus creating a possible point of improvement.
Portfolio Category Capital Allocation
This was a quick take on the allocation, disregarding any other categories, therefore lets us now dive into the portfolio, when separated into categories.
As seen in the screenshots below, the portfolio is split into #L1, #GameFi, #DEX, #RWA, #L2, #GamblFi and #AI
The chart on the left, highlights the coins itself, not considering the allocated capital. The chart on the right is adjusted to the allocated capital. We like to include this part, to visualize that even if you have multiple tokens of one category, it doesn’t necessarily reflect in your allocation.
When ignoring the allocation into the categories we can find a total of 7 categories within the portfolio, where 60% of the tickers represent AI, L1 and DEX tokens, while the other 40% are split into GamblFi, L2, RWA, GameFi.
But when compared to the categories, based on the allocation, AI, L1 and DEX make up 70% of the total portfolio. Considering this, the portfolio is more exposed to these sectors, meaning that if AI sees a run in the upcoming bull market the portfolio could create greater returns, compared to the other sectors. However, if a portfolio is too heavily allocated into one sector of the market (not diversified), it can have some repercussions, especially when other categories outperform your main holdings.
This should not mean, that you should not play on your conviction, if your research tells you that one category could/will outperform another, then you can play upon that conviction, just make sure you are aware of the risk you are taking, when allocating a larger amount of your capital into that sector.
Next, we would like to discuss the L1 holdings where we included $ETH and $SOL, having in mind that these are already quite heavily represented in the top 5, and them making up nearly 30% of the total portfolio, it creates the possibility to look into other upcoming eco systems which could outperform these holdings.
This does not mean that these tokens have to be taken out of the portfolio as these are great to reduce your overall risk exposure, but looking into other tokens like $INJ, $AZERO etc could be a possibility to diversify the portfolio more and optimize the risk more towards medium.
Strategy Alignment
As slightly touched on above, the current strategy of willing to take a medium risk only aligns somewhat with the current portfolio. This is because the portfolio is currently heavily allocating into large caps and therefore representing a behavior of a lower risk portfolio. So, the current holder of this portfolio has to make the following decision: Is medium risk the actual risk he/she is willing to take or is a low risk portfolio perhaps more to the liking of the investor.
But if the investor is willing to take a more medium risk approach, the following changes could be considered:
Opportunity for change
1. Considering our definition of a medium risk portfolio, this portfolio is in our opinion to heavily allocated into large caps and therefore representing more of a Low-risk portfolio, therefore considering some reallocation into some lower price large caps or medium caps could create new opportunities for growth for the portfolio.
2. As touched upon, the categories of AI, L1 and DEX are making up close to 60% of the total portfolio, thus creating a risk, in case a category itself won’t perform well in the upcoming run. This should not mean, that you should not play on your conviction, if your research tells you that one category could/will outperform another, then you can play upon that conviction, just make sure you are aware of the risk you are taking, when allocating a larger amount of your capital into that sector.
3. Linking back to point 2, the portfolio also has close to 30% allocated into L1. Which could limit the growth of the portfolios, as tokens like $SOL and $ETH are already highly priced. While we think that there could be a run on $SOL it is always uncertain if it can reach the old highs. Therefore, looking into new ecosystems could create an opportunity. However, this does not mean that these tokens have to be taken out of the portfolio as these are great to reduce your overall risk exposure, but looking into other tokens like $INJ, $AZERO etc could be a possibility to diversify the portfolio more and optimize the risk more towards medium.
And remember, these opportunities don’t have to be implemented instantly, you can slowly add on dips, adjust your holdings after conducting further research etc.
This was our third portfolio review, we hope you enjoyed the format. And please remember, that this review and activity is not financial advice; it is for informational purposes only. And coins mentioned in the review are no indication of our current holdings or opinions towards certain coins.
Portfolio Review #1:
https://twitter.com/Disguycrypto/status/1721580932824539359
Portfolio Review #2:
https://twitter.com/cryptojohnnyfap/status/1724107878087205322
