Barbell strategy for cryptocurrency

Foreword: For investors with high risk preferences and strong risk tolerance, asymmetric investment strategies are good strategies. If risk appetite is conservative, it is more suitable to configure more types of safe assets, such as government bonds and cash equivalents. Especially when the bear market is coming, there are enough security asset allocations to put yourself in a better position. This paper proposes a "barbell strategy" for cryptocurrencies, which has no middle ground and is configured with either an extremely secure asset type or an extremely risky but highly profitable asset type. This article is only a discussion of investment strategies. Each person has different risk tolerance and cannot be used as an investment suggestion. They must make decisions based on their own situation. The author of this article is "Ryan Sean Adams", translated by the "LAN" of the "Blue Fox Notes" community.

Typical portfolio

Most financial advisors recommend the following portfolio allocations:

  • 50% of stock
  • Property 20%
  • Bond 20%
  • 10% in cash

Of course, they will change the percentage of the asset ratio based on your schedule and goals. In addition, this is related to your risk tolerance: Are you risk-averse? Then configure more stocks. Are you risk-conservative? Then configure more bonds. They may add bulk goods. A small percentage of people may even suggest a few points to invest in “strive for home runs,” such as cryptocurrency investments. (Blue Fox notes: Swing-for-the-fences means trying to reach a home run with a strong swing. That is to go all out to pursue the best results, but at the same time, the risk of failure is also the highest, a bit of a feeling of ruin. In terms of investment, the analogy is that the return is high, but the risk is also high.)

Their advice is based on modern portfolio theory. Historically, this approach has performed well, especially when management costs are kept to a minimum. I don't have much doubt about their advice, although I do wonder if this approach will work according to historical norms as our investment paradigm shifts.

However, is this the only option to consider cryptocurrency investments?


And I don't even believe that this is our best choice.

I want to introduce an alternative strategy: the encryption barbell strategy.

Encrypted barbell strategy

Think of the assets of your portfolio as a barbell with weight on both sides, but thin in the middle. At one end, you have a very safe investment, such as cash & government bonds. At the other end, you have very high-risk investments, such as cryptocurrency. What about the thin middle layer? They are risk-biased assets, such as stocks & real estate, with little input here.

Looks like this:

Is this risk appetite very radical? Still conservative? Yes. Both are in the same time. You can adjust the scale of both sides based on your risk tolerance and goals. You can make a portfolio of 70/30, 90/10, 80/20 ratios, for example:

  • 80% – low risk / low return national debt & cash equivalents
  • 20% – Very high risk / high return cryptocurrency portfolio

Assume that cryptocurrency investments either receive a very high return or are worthless. As you adjust the proportion of your portfolio, there is limited downside. Even if the cryptocurrency collapses, you have low-risk portfolio support. At the same time, you completely avoid the small return, but there is still a middle ground for risk.

No stock. There are no corporate bonds. No real estate. Only security and encrypted assets.

Nassim Taleb (Blue Fox Note: Taleb is the role of The Black Swan) It may be said that this method will help you avoid the negative black swan – those rare shocking events will make the middle Layer asset collapse – this will allow you to take advantage of the positive black swan – the crypto assets take off and provide 10x or even 100x revenue potential. (Blue Fox notes: It should be noted that crypto assets are extremely risky investments, as well as black swan events. It is only suitable for groups with high risk tolerance and high risk appetite. Don't invest blindly, especially It is an area that you don't understand.)

Sounds interesting?

Unconventional strategy

This seems to be an unconventional strategy, but keep in mind that we are dealing with unconventional asset classes. In history, there are few such opportunities that allow ordinary retail investors to have the opportunity to invest in such high-risk and high-upside assets. Such asymmetrical bet opportunities are almost entirely reserved for VCs, private investors, and wealthy qualified investors.

However, the encryption assets are different.

Encrypted monetary assets are an opportunity for asymmetric investment, but it is open to anyone who has access to the Internet.

The result is somewhat binary. Either we are right, the crypto assets grow into billions of assets, or we are wrong, and the entire crypto asset class withers. Like the early Internet, such technology either changed the world or was nothing.

It is either zero or billions. There is no middle ground here.

Adjustment strategy

Once the percentage ratio assigned to both sides of the barbell is determined, this strategy can be implemented on the existing portfolio and implemented through the average dollar cost of the salary.

On the low risk side, you can invest in the safest assets. Both treasury bonds and cash options are likely to be of a choice. If you are worried that increasing sovereign debt will lead to increased inflation, you may also choose to hold assets similar to gold.

On the high risk side, you can invest in cryptocurrency. I like the cryptocurrency portfolio, which consists of monetary investment, bank investment, and stable currency investment, and the stable currency is used for daily expenses.

How about stable currency as a portfolio? They are tricky because they are in the middle, which is what the barbell strategy tries to avoid. They have some risks, and stable coins like DAI have exposure to ETH systemic risk. Even the stable currency supported by the US dollar like the USDC has the risk exposure of the encryption system. Therefore, the best way to include a stable currency may be to strengthen the middle ground of the barbell strategy—you can allocate interest by assigning some proportions to the stable currency while lending it.

Similar to:

  • 80% – low risk / non-return government bonds & cash and cash equivalents
  • 15% – Very high risk / high return cryptocurrency portfolio
  • 5% – intermediate risk / low return stable currency (lending interest)

Of course, it is up to you to decide how to distribute. The stable currency section is optional. You can adjust it the way you like.

to sum up

The Encrypted Barbell Policy is a strategy that distributes your current net worth and future investments between encrypted and traditional assets. It consists of two extremes: a large percentage of super-secure, unreturned assets at one end; and crypto assets with extremely high risk at the other end but with huge upside. You completely skip the smaller-yielding assets, such as stocks and bonds.

This unconventional approach is suitable for the unconventional assets we deal with. Unlike public stocks, crypto assets have extremely high risks and high returns. Either the income is good or zero.

Everyone has a different situation and can decide their own barbell strategy.

However, what I am saying is that having a large number of security assets may help you to survive the extreme fluctuations of cryptocurrency assets. Nowadays, the cryptocurrency market has suddenly plummeted by 30% and stocks are also falling. Having a safe asset gives you peace of mind, allowing you to keep a clear head in the down cycle and better make long-term decisions.

An upgrade is to make better decisions.


Risk Warning : All articles in Blue Fox Notes can not be used as investment suggestions or recommendations . Investment is risky . Investment should consider individual risk tolerance . It is recommended to conduct in-depth inspections of the project and carefully make your own investment decisions.