Discover Kevin O’Leary’s secret to successful crypto investing
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How diversified is your investment portfolio?
Important points
- Kevin O’Leary believes diversification is a key part of investment success.
- Mr. Wonderful has around 20% of his portfolio in crypto and blockchain related projects.
- The Hai tank personality has 32 different coins and tokens.
In the later years, Hai tank‘s Mr. Wonderful, has become a big proponent of crypto. After initially dismissing the whole shebang, Kevin O’Leary first bought Bitcoin (BTC) in 2017. Since then, he has fully embraced the world of blockchain – so much so that the WonderFi app is named after him and he has around 20% of his working capital tied up in crypto.
O’Leary approaches crypto as he would any other investment. He believes it will eventually become the twelfth sector of the economy, and he has decided to treat it that way now. That doesn’t mean going all-in on cryptocurrency; that means ensuring crypto is part of a balanced portfolio with a mix of sectors and specific assets. O’Leary recently tweeted: “Opportunities exist when you’re diversified with your investments. That’s how you’re going to win big when you invest in crypto.”
Why O’Leary Thinks Diversification Will Help You “Win Big”
Whether you’re investing in crypto or another asset class, having a diversified portfolio means you won’t be knocked sideways if a particular investment doesn’t pan out. Besides, as the seasoned investor points out in a recent social media post, “I don’t need all of them to win, I just need a few of them to win! That’s what diversification is all about.”
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He continues, “My strategy is to do the same as I do with stocks, diversify.” There are many parallels between cryptocurrency and the early days of the internet, suggesting that many projects will fail while a handful may go to the moon. It’s still very early days, which makes it hard to know which coin or token will be the next Amazon or eBay.
With over 20,000 cryptocurrencies out there, investors still need to do their research. Look for cryptocurrencies with useful and strong management teams, and consider diversifying within a particular segment of crypto. For example, I am a big fan of smart contract cryptos because they are the framework upon which many other crypto projects are built. Ethereum (ETH) is the largest crypto in this segment, but it struggles with high gas fees and network congestion. So I own Ethereum as well as several Ethereum alternatives — it’s not yet clear which one will come out ahead.
Building a diversified portfolio, Mr. Wonderful style
To build a diversified portfolio, start by thinking about what percentage of your investments you want to dedicate to crypto. O’Leary started with 2.5% and steadily increased his exposure. Many financial experts suggest spending no more than 5% in crypto, while others stretch the figure to 10%. It all depends on your attitude to risk and how much time you are willing to spend researching and understanding the crypto market.
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O’Leary says the way sovereign wealth funds work is to put no more than 20% into a single sector (and he includes crypto as a sector) and no more than 5% into a particular stock or bond. He follows the same model with crypto. Mr. Wonderful, who is chairman of O’Shares Investments, says he owns positions in 32 different coins and tokens.
He told a Bankless podcast a few months ago that his biggest holdings are in Ethereum and Bitcoin, mirroring the approach of a number of successful crypto investors. Combined, these two crypto giants account for nearly 60% of the total crypto market cap, giving them more liquidity and a better chance of long-term survival. O’Leary also owns Polygon (MATIC), a layer 2 solution focused on improving the performance of Ethereum. He is also a fan of Solana (SOL), a fast smart contract crypto that came to prominence last year.
Diversification is not the only secret to crypto success
Diversification is an important skill for any investor. If you invest in a high-risk asset like crypto, controlling your exposure can help you manage your risk and reduce the impact of volatility. The past year has shown us how dramatically crypto prices can fall, and that even high-profile projects can collapse completely.
In addition to building a balanced portfolio, it’s also important to only invest money you can afford to lose. This is a relatively new and unregulated industry, and there is much we do not know about how it will develop. O’Leary can afford to put 20% of working capital into crypto, but your financial situation may be different. Make sure you understand the risks and consider following Mr Wonderful’s example of slowly layering in crypto investments.
By only investing money you can afford to lose, researching each asset carefully and ensuring that crypto is part of a balanced investment portfolio, you will be well positioned to capitalize on any gains. Importantly, if the crypto market goes sideways, it won’t take the economy with it.
