Discover Kevin O'Leary's Secret to Successful Crypto Investing

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  • 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 Shark Tank personality holds 32 different coins and tokens.

How diversified is your investment portfolio?

In recent years, Shark Tank's Mr. Wonderful, has become a big crypto advocate. Having initially dismissed the whole shebang, Kevin O'Leary first bought Bitcoin (BTC) in 2017. Since then, he's fully embraced the world of blockchain -- so much so that the WonderFi app is named after him and he's got around 20% of his operating capital tied up in crypto.

O'Leary approaches crypto like he would any other investment. He believes it will eventually become the twelfth sector of the economy and he's decided to treat it that way now. That doesn't mean going all-in on cryptocurrency; it means ensuring crypto is part of a balanced portfolio with a mix of sectors and specific assets. O'Leary recently tweeted, "Opportunity exists when you are diversified with your investments. That's how you're going to win big when investing in crypto."

Why O'Leary believes diversification will help you "win big"

Whether you're investing in crypto or any other asset class, having a diversified portfolio means you won't be knocked sideways if one particular investment doesn't pan out. Moreover, as the seasoned investor points out in a recent social media post, "I don't need them all to win, I just need a few of them to win! That's what diversification is all about."

He continues, "My strategy is to do the same thing I do with stocks, diversify." There are a lot of parallels between cryptocurrency and the early days of the internet, which suggests that many projects will fail while a handful could go to the moon. It's still very early days, making it difficult to know which coin or token will become the next Amazon or eBay.

With over 20,000 cryptocurrencies out there, investors still need to do their research. Look for cryptocurrencies with utility and strong leadership 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 on which many other crypto projects get built. Ethereum (ETH) is the biggest 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 isn't 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 began with 2.5% and steadily increased his exposure. Many financial experts suggest putting no more than 5% into crypto, while others stretch that figure to 10%. It all depends on your attitude to risk and the amount of time you're 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 any specific stock or bond. He's following that same model with crypto. Mr. Wonderful, who is the 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 largest holdings are in Ethereum and Bitcoin, which mirrors the approach of a number of successful crypto investors. Combined, these two crypto giants account for almost 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 that's focused on improving the performance of Ethereum. He is also a fan of Solana (SOL), a speedy smart contract crypto that shot to fame last year.

Diversification isn't the only secret to crypto success

Diversification is an important skill for every investor. If you're investing in a high-risk asset like crypto, controlling your exposure can help you manage the risks and reduce the impact of volatility. The last 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's a lot we don't know about how it will evolve. O'Leary can afford to put 20% of his operating 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 into any crypto investments.

By only investing money you can afford to lose, researching each asset carefully, and ensuring crypto is part of a balanced investment portfolio, you'll be well positioned to capitalize on any gains. Importantly, if the crypto market goes sideways, it won't take your finances with it.

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