The Blog: Backed By Bitcoin: Proper Risk Management Practices

March 15, 2023

Backed By Bitcoin: The Blog

PROPER RISK MANAGEMENT PRACTICES

This blog post will cover risk allocation. This is an extremely important concept in crypto because of the aspect of volatility. Because Bitcoin has a history of dropping 70% - 80% from the highs, it is imperative that we understand portfolio composition and risk allocation. Cryptos (and companies) with small market caps are normally the riskier plays and traditionally should be made a smaller portion of our portfolio. The best part about being a New World Banker is that you are responsible for allocation and risk management of your own portfolio. You are responsible for learning, strategizing and deploying capital (LSD). This is one of the largest concepts that keeps people from being sovereign with the money that they have and why people feel like they need to pay Wall Street to gamble their money off and not have to pay the bill for 40 years. Anyway, I digress! Let’s get into some good risk management practices and I’ll teach you some principles I’ve used to be successful throughout this bear cycle.

Many individuals will tell you do not invest what you cannot afford to lose. This is a good mantra, but a basic one. Some more powerful mantras are the following.

RISK MANAGEMENT MANTRAS

1. If you don’t know where the yield is coming from, then you are the yield! Look for blockchain addresses and proof of any fees you are supposedly generating.

2. Pick an overall strategy and dollar cost average your way into it. You’ll be surprised how large your bag can grow in one 4-year cycle.

3. Part of “LSD” is continuing to follow the projects that you’re invested in to be able to spot a change in fundamentals. If the goals of the project don’t align with what you want, then you should exit as soon as possible.

I think it’s important to identify your top priority within crypto. People have different goals and objectives, and this space can be pretty much anything you want it to be. It’s up to you to decide what you want. My main objective is passive income. So, my portfolio is largely staking and node operation. In exchange for performing these services for the network I receive fees. My goal is to continue to dollar cost average into the things that continue to produce income and eventually build a sustainable revenue model for my business. Coming in with that understanding, I continue to search for things that meet those objectives. You’ll need to prepare an investment thesis for any project before you start your dollar cost averaging strategy into those assets. You’ll need to ensure that the yield is sustainable and not a result of unplanned inflationary pressures. This is where learning and strategizing comes in. We will need to learn a project to find out if it suits our overall crypto strategy and see if it will serve the overall vision for what you want. Some people want to be early to a coin and sell at the pump. Sort of like a venture capitalist type of situation. There’s nothing wrong with that, but it’s easy to get into a gambling mentality with that. I prefer to find fundamentally sound projects with sustainable tokenomics models that will allow me to get paid in perpetuity. In this space, you only must be right once and only after studying the greatest innovators and monopoly builders of American history will you find my reasoning for looking at some digital coins in this manner. There are a lot of things to get distracted by and you need to do everything you can to keep your main goal top of mind.

Let’s get into some hard numbers on how my portfolio looks right now. These allocations will change as market conditions change. As of right now, in a bear market there’s no need to be heavy in stable coins in my opinion. Looking at the overall price of these assets over the last 4-5 years we are well below 52-week lows and price action is consolidating in a tight range overall. That’s a time to be deploying capital in a slow and controlled manner. We must learn to think like an institution, it doesn’t matter if our portfolio is $1,000 or $100,000,000. Money will always go to the pockets where it is treated best and cared for properly. Here are my current holdings (I know that’s what everyone is here for). I hope that you find success and that your strategy is well planned and thought out.

The hardest part of this game is patience. If you can learn patience, then you will be successful at anything you set out to accomplish, no matter how big or small. It’s about consistently working, not having it all at once. During periods of draw down it’s going to be about following the market and patiently waiting in cash while deploying small amounts of your overall cash. This pie chart will change and ultimately these crypto holdings will grow to 25% of my total portfolio. The goal is to have 25% of your money at risk while bringing back more value to add to your overall bag. Eventually you will be able to live from the value that the 25% brings in and your long term holds never dwindle.