Portfolio Management

Today, DZN Dynasty wants to discuss a few important reminders in terms of managing your portfolio. This is one of those topics which is not particularly sexy, but is very important for your consistent success.

Note: The information in this article and the links provided are for general information only and should not be taken as a financial advice.

Rebalance:

The idea here is simple; when one of your bags starts pumping like crazy and, as a result, starts taking up a large percentage of your total portfolio percentage, then it may be time to consider taking profits. Let’s say your ideal allocation for coin X is 5-10% but it is currently 25% of your portfolio. Well….. consider cutting some of that position. Take profits on it and either add to other positions or move your stablecoins to a lending platform while waiting to enter your next position. On a similar note, I rarely allocate more than 1-3% of my portfolio to a new position. This reduces risk but can still capture significant upside.

Take Full Advantage of Investments:

Not using your assets is a very common mistake that investors make. Can you stake your coin? Then do it! You are robbing yourself of the opportunity if you do not. Likewise, assets like Bitcoin, which have fewer opportunities for staking rewards, can still be lent out. There are tradeoffs, but also benefits! Ask yourself if the rewards are worth the risk, and if so, then explore your options because while 6% a year does not sound like much, it actually adds up rather quickly and certainly beats the rate of inflation (roughly 3% annually).

Minimize Costs:

This is another one of those areas that investors do not pay enough attention to, but if ignored, can really eat into your profits long term. For example, if you can get a token on a centralized exchange, then do not use decentralized exchanges such as Uniswap! You will be paying much much more in gas fees versus the total charge on a centralized exchange. Even Uniswap’s 0.3% fee is high by industry standards. This is especially the case when factoring other fees such as liquidity provider fees (“LP fees”) and price impact fees. Binance, for example, is 0.1% and 25% less when paying fees using the BNB token. That 0.225% extra may not sound like a lot but it adds up pretty quickly. Also, keep in mind that withdrawal fees from exchanges can be quite high, i.e. $25 for a BTC withdrawal. So, instead of withdrawing every week, maybe you wait and do it once a month or once every two months so you only pay $25 every two months instead of $200 over the same time frame on weekly withdrawals.

Cash On Hand:

You can’t buy the dip if you do not have any chips! At any given time 5-10% of my total portfolio is in USDC. Half or more will be attained by leveraging my coins and borrowing against them from a defi protocol while still earning yield for both borrowing and leveraging. I am not saying these percentages are ideal, it is just what I have been doing. But having stablecoins for potential dips or new project listings is essential.

Diversify:

I know a lot of crypto investors are crypto-only investors, and considering the huge potential of the asset class, I certainly understand. Having uncorrelated investments will make riding out the bear market much easier. Something to consider if you are looking for somewhere to park profits from crypto.

Time Frames: This is another area that does not get enough attention. Different assets have different time frames. Bitcoin, for example, is a very long-term hold for me. It is a reserve asset. But some of these hot new token sales are a get in and get out kind of situation — you may only hold them for a few months. It is important when entering a position to consider if it is a long, short, or medium-term position. Try not to get married to a coin that you were only intending to be in for a short period of time. Otherwise, you may end up holding a bag at a loss for a very long time.

Tax Efficiency:

**NONE OF THE INFORMATION BELOW CONSTITUTES TAX, LEGAL, OR FINANCIAL ADVICE AND YOU SHOULD ALWAYS CONSULT A LAWYER OR CPA**

Taxes, taxes, and more taxes…. so much fun. But since you have to pay them, make sure you speak to a professional such as a CPA or do proper research on the tax consequences relevant to your jurisdiction. For example, understand that long-term holdings are often taxed at lower rates under the category Long-Term Capital Gains (“LTCG”) which typically occurs when you hold a coin for a period of 1 year or greater. By holding a coin for less than 1 year, most jurisdictions apply a Short-Term Capital Gains (“STCG”) tax with a very hefty tax rate. Also, remember that losses can be used to write off tax obligations.

By leveraging your coins and borrowing against them, you are not realizing any gains, therefore, it generally should not be considered a taxable event. However, using stablecoins which were attained by leveraging your coin, and making profits, will generally count as a taxable event. Although, paying off your debts later on is generally not considered a realized gain. THIS IS WHAT BILLIONAIRES DO IN THE REAL WORLD WITH STOCKS TO AVOID TAXATION. They over-collateralize their stocks to receive a very low interest rate loan from banks and when they die, their stocks will be passed down to their beneficiaries at a stepped-up basis. By receiving a stepped-up basis, they are essentially paying $0 on their stock gains.

Take Profit Strategies for altcoins:

Minimizing Risk & Maximizing Gains

When coins are pumping hard, it is easy to get greedy and hope for another 2x pump. But more often than not, you will time it wrong. To better understand timing the market perfectly in order to take healthy profits during a pump, here is a summary of a video I found helpful.

To find out the ultimate exit strategy to minimize risk and maximize potential gains, all while taking out profits as often as possible, some experimental calculations were made.

Tested pattern:

  • Sell every 2x
  • Sell every 3x
  • Sell every +33%
  • Sell every +50%
  • Sell every +67%

Each of the patterns were tested by taking out 50%, 33.3%, and taking out 25% of profits.

To give you an idea, test #1 looked like this:

Sell every 2x, take 50% out

Outcome:

  • Not a good strategy as your capital in the coin is never growing, leading to no exponential growth
  • Compared to maximum potential value which you could have gained with the coin, you would start realizing a “loss” at 16x, which is the comparison point

(to be fair, you could reinvest your profit and may make further gains)

After experimenting through all patterns, we looked at the experiments for specific rules:

  • Remove initial capital at 3x (so you are no longer exposed to downside risk as it is basically free money from that point onwards)
  • Double the original capital taken out at 6x
  • Roughly 50% “perfect value left” at 18x
  • Easy to follow

So if you are not a trader, and you are not trying to find the absolute best time to sell on a peak (because no one actually knows), it is a good idea to take some profits out along the way.

Additional thought: Whenever the coin pumps and the risk to reward starts to be a potential of 2x more, but the downside risk is more like 80%, you should consider selling everything at that point.

After experimentation, the results revealed 4 optimal take profit strategies:

Strategy 1: 25% out at key levels (2, 3, 6, 9, 18x)

Conclusion:

  • Decent results for combined values with limited downside risk

Strategy 2: Taking profit at even numbers as often as possible

Conclusion:

  • Reasonable losses
  • Good for people who want to take out even numbers/ even percentages

Strategy 3: Sell 20% every +50%

Conclusion:

  • BEST STRATEGY, in our opinion, as risk and reward is best balanced
  • The combined value gained from this strategy is not as good as in strategy 1 or 2, BUT you take profits more often which limits your risk much more efficiently than strategy 1 and 2

Strategy 4: Sell 15% every +30%

Conclusion:

  • Good strategy if you want to take out profit as often as possible, but combined value gained from this strategy is minimal compared to other strategies covered

The best way to put the strategies in place is by using the altcoin price target sheet where you can enter your coins’ entries and targets, as well as with the strategy sheet, so you can experiment with your own numbers.

Enter these targets as price alerts into your portfolio trackers (i.e. Coinstats), enter a limit order on exchanges (1Inch), or enter multiple limit orders if you have the assets on your centralized exchanges (Binance).

Always remember unrealized profit is not profit.

Credits to denome for the video: https://www.youtube.com/watch?v=KDsVlz2tNIU

Altcoin price target sheet: https://docs.google.com/spreadsheets/d/1Y0LKuetnAiF_0gm9rhi2JrMl0agVIBXu9JfVfnure1A/edit#gid=0

Stay connected with us for the latest news and gems!

Website: https://dzndynasty.com/

Telegram: https://t.me/DZN_DYNASTY

Twitter: https://twitter.com/DZN_Dynasty

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DZN Dynasty

DZN Dynasty

Ape smarter, not harder!

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