Crypto Asset Allocation in 2021

Blockchain

Bluechips, mid-caps, small-caps, and more!

Photo by Executium on Unsplash

No price is too low for a bear or too high for a bull — Unknown

Disclaimer

There are three things certain in life:

  • Death
  • Taxes
  • I’m not your financial advisor

Hence, none of my opinions in this article should be considered financial advice.

Note: Most altcoin cryptocurrencies are still highly correlated with Bitcoin. Therefore, the effects of diversification such as lowering risk may not fully be possible yet.

Overview

This article will be an attempt to create a well-diversified cryptocurrency portfolio.

Though this is not financial advice, I will only include those cryptocurrencies that I am invested in for the sake of accountability.

The cryptocurrency picks that I’m going to talk about will be classified based on their market capitalizations. Note that this categorization by market cap is my own and not standardized by any means.

They are as follows:

  • Bluechips or Large Caps (Above $10 Billion)
  • Mid Caps ($1 Billion — $10 Billion)
  • Small Caps (Less than $1 Billion)

I have calibrated the portfolio according to my style of investing which is active and moderately risk-seeking. As a result, I would recommend the following allocation:

  • 60% Large Caps
  • 15% Mid Caps
  • 5% Small Caps
  • 20% Stablecoins

If you are extremely risk-averse, then you might want to allocate a larger portion of your crypto into large caps and vice-versa if you are a risk-lover.

Lastly, I will not be doing a deep dive into the technology behind the cryptocurrencies I’ve picked. Rather, I will provide a brief overview about what they do, why I like them, and provide links to resources/whitepapers.

TL;DR

I know this article is a lengthy read. If you are feeling lazy then here is a graph visualizing the cryptocurrency portfolio.

https://medium.com/media/1c57f142eab179bbf06acff5aa13233a/href

However, I would highly encourage reading the rest of the article to understand the reasoning behind the investment recommendations.

Note: Some of the estimates of the market caps may differ due to price movements.

Bluechips

Bluechips are the cryptocurrencies with the biggest market caps. Hence, they could be considered less risky as compared to smaller cryptos. The majority of the names on this list might be ones that you have heard of before. Let’s jump into them.

Bitcoin

Photo by Thought Catalog on Unsplash

Market Cap: $740 Billion

Traded on: Coinbase, Binance

Ticker: BTC

Allocation: 20%

What is it?

Digital currency enabling peer-to-peer transactions without a centralized banking system.

Why do I like it?

  • It is the largest cryptocurrency in terms of market cap.
  • It has prominent institutional backing from Tesla, Microstrategy, Square, Grayscale, etc.
  • One of the two cryptocurrencies that are actively traded on the world’s largest financial derivative exchange i.e, the Chicago Mercantile Exchange (CME).
  • Bitcoin is deflationary in nature. There are only 21 million coins in existence. This implies that its value could continue to increase with time.
  • Because of its deflationary nature, Bitcoin is evolving towards being a store of value akin to Gold. It is already regarded by many adopters and enthusiasts as “digital gold”.

Resources:

  • Whitepaper
  • What is Bitcoin?

Ethereum or Ether

Photo by Nick Chong on Unsplash

Market Cap: $310 Billion

Traded on: Coinbase, Binance

Ticker: ETH

Allocation: 18%

What is it?

Decentralized blockchain ecosystem with smart contract functionality.

Why do I like it?

  • It is the most actively used blockchain.
  • The project enables developers the ability to create a wide variety of applications on top of it. Some of them include decentralized finance or DeFi and non-fungible tokens or NFTs.
  • It has the first-mover advantage in the blockchain infrastructure and smart contracts space.
  • The project has a very active developer and user community(Network effect).
  • Currently, Ethereum is undergoing an upgrade that intends to make the platform more secure, scalable, and sustainable (ETH 2.0).

Resources:

  • Whitepaper
  • What is Ethereum?
  • Ethereum 2.0

Cardano

Source

Market Cap: $54 Billion

Traded on: Coinbase, Binance

Ticker: ADA

Allocation: 5%

What is it?

A blockchain platform, with proof of stake consensus founded on peer-reviewed research and developed through evidence-based methods.

Why do I like it?

  • The founder, Charles Hoskinson is a co-founder of Ethereum.
  • The project is backed by rigorous academic research leading to strong crypto-economics and distributed systems engineering.
  • Cardano uses a proof of stake consensus mechanism as opposed to proof of work which enables faster, cheaper transactions on the blockchain.
  • Being a commercial project, Cardano enables a faster and more directed style of development as opposed to Ethereum’s open-source style of development.
  • In its upcoming milestones, Cardano will be adding smart contract functionality which could trigger a huge inflow of activity thereby facilitating growth on the network.

Resources:

  • Research papers
  • Deep Dive

Polkadot

Source

Market Cap: $28 Billion

Traded on: Binance, Huobi Global, Kraken

Ticker: DOT

Allocation: 5%

What is it?

A blockchain platform built to connect private and consortium chains, public and permissionless networks, oracles, and future technologies that are yet to be created.

Why do I like it?

  • The founder, Gavin Wood, is a co-founder and ex-CTO of Ethereum. He wrote the first implementation of Ethereum and also created Solidity, the language used to build smart contracts on the Ethereum blockchain.
  • Polkadot comprises an innovative architecture of Parachains, Relaychains, and Bridges which will encourage horizontal development of layer 1 blockchains and seamless interoperability within the aforementioned chains as well as projects outside Polkadot.
  • Polkadot is complemented by a canary network called Kusama for testing out applications before official deployments on the platform. This will improve the security and reliability of the multiple projects building on the Polkadot ecosystem.
  • Though Gavin Wood has mentioned that Polkadot intends to work with Ethereum, its strong foundations imply that it could be a direct competitor.

Resources:

  • Light paper
  • White paper
  • How Polkadot works
  • Wiki

Chainlink

Source

Market Cap: $12 Billion

Traded on: Coinbase, Binance

Ticker: LINK

Allocation: 4%

What is it?

A decentralized oracle network provides reliable, tamper-proof inputs and outputs for complex smart contracts on any blockchain.

Why do I like it?

  • Chainlink provides off-chain data to infrastructure blockchains like ETH, DOT. The network interacts with external data sources such as data lakes and APIs and creates a bridge between them and blockchains.
  • Chainlink is a first mover in the oracle network space.
  • It has no serious competitors. (yet)
  • It has already achieved wide-scale adoption from multiple decentralized projects, cryptocurrency analytics platforms, crypto, and traditional exchanges.
  • There are new upgrades that have been proposed to enhance performance (Chainlink 2.0).

Resources:

  • Chainlink 1.0 whitepaper
  • Chainlink 2.0 whitepaper
  • Chainlink review

Binance Coin

Source

Market Cap: $61 Billion

Traded on: Binance

Ticker: BNB

Allocation: 4%

What is it?

A digital currency used on the Binance platform to pay fees, earn rewards and invest in ICOs.

Why do I like it?

  • It is one of the few multi-use case utility tokens whose utility is actually being realized on multiple platforms such as the Binance exchange, Binance Smart Chain, and the Binance Dex.
  • The token is created and backed by Binance, the largest centralized cryptocurrency exchange.
  • There is a quarterly burn of the native BNB token making it deflationary.
  • Provides holders access to IDOs on the Binance Smart Chain via the native BNB token.

Resources:

  • BSC Whitepaper
  • BNB Review

Uniswap

Source

Market Cap: $13 Billion

Traded on: Coinbase, Binance

Ticker: UNI

Allocation: 4%

What is it?

A DeFi exchange protocol used to exchange cryptocurrencies on the Ethereum blockchain.

Why do I like it?

  • It is the de-facto automated market maker (AMM) on the Ethereum network.
  • It’s also the largest DEX in terms of volume and market capitalization.
  • Uniswap has the largest collection of trading pairs to trade from in the entire cryptocurrency space.
  • The version 3 update has added a lot of new features that include analytics, better functionality to liquidity pools, and advanced oracles.
  • The project is backed by prominent venture capital firms like Andreesen Horowitz and Paradigm Venture Capital.

Resources:

  • V1 Whitepaper
  • V2 Whitepaper
  • V3 Whitepaper
  • Review

Mid Caps

Mid-caps are the cryptos that are slightly riskier than the blue chips. However, with higher risk comes a higher reward. These coins could potentially see massive growth thereby, having ROIs far greater than our blue-chip picks.

Polygon (Previously MATIC)

Source

Market Cap: $12 Billion

Traded on: Coinbase, Binance

Ticker: MATIC

Allocation: 3%

What is it?

A project aimed at solving scalability issues on the Ethereum blockchain by building layer 2 infrastructure.

Why do I like it?

  • The project is made in India 🇮🇳 (In before you say bias).
  • The project has seen solid growth in Q1 and Q2 of 2021.
  • Matic offers numerous solutions for the Ethereum blockchain such as increasing transaction throughput, reducing transaction fees, improving user experience with decentralized applications (dApps) on the Ethereum blockchain via Matic wallet as well as open-source solutions to improve development on the Ethereum network via Dagger.
  • The project rebranded to Polygon and aims to become Ethereum’s internet of blockchains thereby opening up potentially multiple use cases and massive potential for interoperability of blockchains like Polkadot and Cosmos with the Ethereum network.
  • Partnerships with other prominent projects such as Chainlink and The Graph.

Resources:

  • Polygon Lightpaper
  • Matic Whitepaper
  • Matic Review
  • Polygon Review (Video)

AAVE (Previously LEND)

Source

Market Cap: $6 Billion

Traded on: Coinbase, Binance

Ticker: AAVE

Allocation: 2%

What is it?

An open-source and non-custodial liquidity protocol for earning interest on deposits and borrowing assets built on the Ethereum blockchain.

Why do I like it?

  • Currently, it is the largest lending protocol by market cap.
  • Aave provides users with the ability to mint interest-bearing tokens (aTokens) upon depositing collateral.
  • It also enables native credit delegation to borrow debt without over-collateralization.
  • Smart contract developers can leverage products such as flash loans to exploit arbitrage opportunities among DeFi platforms.
  • The project optimizes Ethereum gas fees for transactions on the platform.
  • Currently being used by high net worth individuals like Mark Cuban.

Resources:

  • V1 Whitepaper
  • V2 Whitepaper
  • Aavenomics
  • AAVE Review

Terra

Source

Market Cap: $4 Billion

Traded on: Binance, KuCoin

Ticker: LUNA

Allocation: 2%

What is it?

Algorithmic stablecoin platform pegged by multiple fiat currencies using seigniorage. Note that the LUNA token is not a stablecoin. It’s the native token of the Terra ecosystem.

Why do I like it?

  • The co-founders have strong backgrounds in Economics, Computer Science, and Entrepreneurship.
  • Luna presents an innovative solution for minting stablecoins and creating a stable transactional infrastructure.
  • The project already has massive interoperability with other prominent blockchain platforms like Polkadot, Binance Smart Chain, Ethereum, Solana, etc.
  • Since September 2020, there has been a dramatic increase in demand for the native stablecoin UST.
  • Fantastic projects such as Mirror Protocol (synthetic assets market) and Anchor Protocol (stable yield vehicle)are built on top of the Terra ecosystem.

Resources:

  • Whitepaper
  • Terra Review
  • Mirror Protocol Review

Kusama

Source

Market Cap: $3 Billion

Traded on: Binance, Kraken

Ticker: KSM

Allocation: 2%

What is it?

A development environment blockchain platform that acts as a canary network for Polkadot which is used for rapid development and testing of projects before potentially shifting to Polkadot.

Why do I like it?

  • Kusama was created by the founder of Polkadot, Gavin Wood, and hence, shares the same codebase.
  • Since the project can act as a test net for Polkadot but is actually a real blockchain platform whose native token has real value, developers can develop projects really fast which will encourage growth.
  • For developers, the cost to build on Kusama is far less than that on Polkadot.
  • Historically, the native token KSM has seen incredible growth within the span of a year.

Resources:

  • Kusama Guide
  • Review

PancakeSwap

Source

Market Cap: $3 Billion

Traded on: Binance

Ticker: CAKE

Allocation: 2%

What is it?

PancakeSwap is a decentralized cryptocurrency exchange for swapping
BEP-20 tokens on the Binance Smart Chain.

Why do I like it?

  • Incredibly fast and cheap transactions as compared to contemporaries such as Uniswap.
  • The platform incentivizes yield farming by providing great rewards to users. Apart from yield farming, users can stake the native CAKE token to earn CAKE tokens at extremely high APYs (88%)!
  • Enables holders to participate in initial farm offerings (IFOs) on the platform. Additionally, holders can also take part in lotteries and purchase NFTs on the platform.
  • The project has an exciting roadmap ahead that includes, lending and borrowing, margin trading, binary options, and more.

Resources:

  • Guide
  • Review

Decentraland

Source

Market Cap: $1 Billion

Traded on: Coinbase, Binance

Ticker: MANA

Allocation: 2%

What is it?

A decentralized virtual reality world that allows users to interact with other users, purchase virtual real estate and build virtual businesses.

Why do I like it?

  • One of the few NFT projects being backed by institutions such as Grayscale.
  • The project still has a relatively small market cap and hence, a great potential for growth.
  • Innovative use cases such as a large virtual NFT marketplace for land, wearables, names. There has been a high demand for the virtual estate available on the platform. Some plots of land have sold for millions of dollars.
  • The native MANA token is highly decentralized i.e, no single wallet holds a disproportionately large amount of MANA tokens.
  • Great partnerships with other prominent gaming and blockchain scaling projects like Atari and Matic.

Resources:

  • Whitepaper
  • Review

Zilliqa

Source

Market Cap: $1 Billion

Traded on: Binance, Upbit

Ticker: ZIL

Allocation: 2%

What is it?

A high-performance blockchain attempting to solve scalability, Zilliqa is the first blockchain to implement sharding on its mainnet.

Why do I like it?

  • The project was born at the National University of Singapore. As a result, Zilliqa has a team of academics, entrepreneurs, and engineers whose work is backed by peer-reviewed academic research.
  • The Zilliqa team has designed their own language for writing smart contracts called Scilla. The language is thought to be superior to the likes of Ethereum’s Solidity.
  • The style of sharding implemented by Zilliqa called network sharding ensures that the blockchain scales in a linear fashion to meet the needs of a growing ecosystem. As a result, the transaction throughput of the Zilliqa blockchain is expected to rival or even surpass Ethereum 2.0.
  • The project has partnered up with numerous sports celebrities, youtube personalities for the launch of exclusive NFTs on the platform.
  • Up next on their roadmap are cross-chain solutions that would bring interoperability with other blockchains. This could stimulate the growth of the Zilliqa ecosystem.

Resources:

  • Whitepaper
  • Review

Small Caps

Small caps are those cryptocurrencies with low market capitalization. Theoretically, these cryptos have the most potential for growth but also have extreme risks associated with them.

Ren Project (previously Republic Protocol)

Source

Market Cap: $400 Million

Traded on: Coinbase, Binance

Ticker: REN

Allocation: 2%

What is it?

A blockchain platform with a focus on interoperability. Ren focuses on the transfer of cryptocurrencies between blockchains in a trustless manner without relying on a centralized exchange or custodian.

Why do I like it?

  • Ren has created a unique proprietary technology protocol called RenVM to mint-wrapped versions of cryptocurrencies that can exist on non-native blockchains using a network of nodes called dark nodes.
  • The REN token has just one use case so far, staking as a bond for running dark nodes. However, since the fees paid to dark node operators are in the native currency that is being wrapped (ETH is paid for renETH, BTC for renBTC, etc), we could see a rise in adoption especially among developers which would drive the price of the token upwards.
  • Ren has already partnered up with several big blockchain ecosystems. These include Ethereum, Polkadot, Solana, Avalanche, and Binance Smart Chain.
  • Currently, the project is extremely undervalued. However, its potential to be the hub for interoperability in the crypto space could drive growth akin to the likes of Chainlink.

Resources:

  • Ren Litepaper
  • Republic Protocol Whitepaper
  • Ren Project Review

Injective Protocol

Source

Market Cap: $250 Million

Traded on: Binance, Huobi Global

Ticker: INJ

Allocation: 2%

What is it?

A fully decentralized layer-2 exchange platform for trading cross-platform derivatives built on top of two prominent blockchain platforms, Ethereum and Cosmos.

Why do I like it?

  • Injective provides the unique feature of allowing users to create derivative pairs to trade on the exchange. This opens up a wide range of possibilities for creating novel financial products on the platform.
  • The Injective Protocol is built on top of the Cosmos SDK and Ethereum, a combination that promises a fully decentralized trading experience. Additionally, being a layer-2 infrastructure enables the protocol to offer lower costs and high transaction speeds as compared to other decentralized exchanges.
  • The native INJ token has multiple use cases like governance (voting rights), fee value capture (deflationary properties), collateral for derivative contracts (potential staking rewards), exchange participation rewards (liquidity provider incentives), and security for sidechain nodes.
  • The project is backed by a very solid set of investors such as Pantera Capital, Binance, and CMS.

Resources:

  • Whitepaper
  • Documentation
  • Binance research report
  • Review

Akash Network

Source

Market Cap: $220 Million

Traded on: AscendEX(Bitmax)

Ticker: AKT

Allocation: 1%

What is it?

A decentralized cloud computing network marketplace designed to work as a glue for decentralized storage projects like Filecoin as well as offer high-performance computation resources at extremely affordable rates.

Why do I like it?

  • According to estimates, cloud computing services on Akash with be 1/10th the price of computing resources on market leaders such as Azure, AWS, and Google Cloud.
  • The native AKT token happens to be one of the most highly staked cryptocurrencies in the space with over 83% of the eligible tokens being staked. This will ensure stability in the price of the token.
  • Furthermore, the ecosystem has a self-adjusting inflationary system that is designed to further reduce price pressure during bear markets.
  • The staking rewards for the AKT token are fairly high at around 55% APY.
  • The network also happens to be one of the only blockchains that provide network dividends to stakers of the AKT coin depending on Gross Merchandise Value (GMV).

Resources:

  • Akash Network Whitepaper
  • AKT token Economics
  • The Economics of Akash Network and Token
  • An Evolution of Akash Network Token Economics
  • The Earning Potential of Akash Token

Stablecoins

So far, we have allocated 80% of our portfolio to cryptocurrencies.

I advocate keeping the remaining 20% of your investible amount into stablecoins for the following reasons:

  • Ability to earn passive income via lending protocols like AAVE, Compound, Celsius Network, and Anchor Protocol to diversify risk.
  • Liquidity in order to buy dips in the market.
  • Earn rewards via yield farming on platforms like PancakeSwap.

Some of the stablecoins I would recommend are:

  • Tether (USDT)
  • USD Coin (USDC)
  • Binance USD (BUSD)
  • Dai (DAI)
  • TerraUSD (UST)

Bonus!

When I started writing this article, I did not expect to be writing this section.

However, as I continued writing I realized that I should not neglect coins with fantastic potential for growth and value simply because I don’t own them.

So, here are some of my mid-cap and small-cap picks that I would love to own.

Mid Caps

  • Cosmos (ATOM)
  • Avalanche (AVAX)
  • Solana (SOL)
  • THORChain (RUNE)
  • VeChain (VET)
  • Enjin Coin (ENJ)

Small Caps

  • ICON (ICX)
  • Mirror Protocol (MIR)
  • Ocean Protocol (OCEAN)
  • Polkastarter (POLS)

I hope you enjoyed this article! Until next time! 👋

References:

  • Earn Passive Income with Crypto | Staking Rewards
  • Coin Bureau – The Crypto Coin Authority
  • Bitcoin – Open source P2P money
  • Home | ethereum.org
  • Cardano is a decentralized public blockchain and cryptocurrency project and is fully open source.
  • Polkadot Network
  • Blockchain Oracles for Hybrid Smart Contracts | Chainlink
  • Bitcoin Exchange | Cryptocurrency Exchange | Binance
  • Uniswap
  • Matic Network – Scalable and instant blockchain transactions
  • Aave – Open Source DeFi Protocol
  • Terra – powering the innovation of money
  • Kusama, Polkadot’s Canary Network
  • Home | PancakeSwap
  • Welcome to Decentraland
  • Homepage | Zilliqa
  • Ren Project
  • Access Limitless DeFi Markets with Zero Barriers.
  • Akash Network


Crypto Asset Allocation in 2021 was originally published in DataDrivenInvestor on Medium, where people are continuing the conversation by highlighting and responding to this story.