Hey Edge readers,

2025 is shaping up to be a pivotal year for crypto investors, with a lot of market volatility expected ahead. This week, we’re breaking down the essentials of a winning portfolio strategy: how to allocate between BTC, ETH, stablecoins, and altcoins to capture growth while staying prepared for market shifts. Whether you’re looking to ride the bull market or lock in gains at the right time, our guide will help you navigate the year with confidence.

Stay sharp. 🫡

-The Exponential team

How to position your portfolio in 2025?

Building a well-rounded portfolio in 2025 requires careful allocation between Bitcoin, Ethereum, stablecoins, and altcoins. However, knowing when to take profits and identifying market top signals are just as crucial. Below we outline ways to balance growth and risk in your portfolio as the cycle heats up.

Portfolio allocations

Disclaimer: This post is only for informational purposes and is not financial advice. Please do your own research before doing any crypto investing.

BTC and ETH

Bitcoin and Ethereum should form the foundation of your crypto portfolio, offering multi-cycle growth potential. Their allocation will vary based on where we are in the cycle:

• Early-cycle: At the beginning of a new cycle, focus heavily on BTC and ETH. These assets are less volatile and more resilient during market volatility. BTC acts as a store of value and hedge against inflation, while ETH powers the largest ecosystem of decentralized applications.

• Late-cycle: As the market matures and speculative assets begin to outperform, gradually reduce BTC and ETH allocation. While profits can be rotated into stablecoins to lock in gains, BTC and ETH should still remain core holdings for exposure to the crypto market’s primary growth drivers.

Stablecoins

Stablecoins serve as your cash reserve. Their allocation evolves with the cycle to maximize opportunities and preserve gains:

• Early-cycle: During the early stages of a cycle, keep a smaller allocation in stablecoins while maintaining liquidity for opportunities. Deploy funds into BTC, ETH, or promising altcoins during temporary corrections to lower your average entry cost.

• Late-cycle: As the market overheats and speculative assets reach unsustainable highs, rotate profits into stablecoins. A strong stablecoin position allows you to re-enter the market at lower levels when the cycle resets.

Altcoins

Altcoins are the high-risk, high-reward part of your portfolio. Their allocation can quickly become a significant part of your portfolio towards the latter stage of the market cycle:

• Early-cycle: In the early stages of a cycle, allocate conservatively to altcoins, prioritizing blue-chip projects or emerging sectors like AI agents, RWAs, and Layer 2 solutions.

• Late-cycle: As the cycle progresses, altcoin gains can accelerate substantially. Look to actively take profits into BTC, ETH, or stablecoins as prices rise. Use this phase to secure gains and avoid overexposure to speculative assets.

Measuring cycle tops

Even though current market conditions indicate that we are still in a bull run, the reality is that it won’t last forever. Knowing when to lock in profits is critical to preserving gains. Here are key indicators to help identify market saturation:

Bitcoin dominance

This indicator shows BTC’s share of the total crypto market. Historically, when dominance peaks, it often signals an opportune time to rotate profits into altcoins, which tend to outperform in the latter stages of a bull cycle. Contrarily, when Bitcoin dominance is low, it might indicate that the altcoin market is over-bought and close to the start of a new capitulation phase in the cycle. Keep an eye on this metric to make timely adjustments and maximize your returns.

Market Value to Realized Value (MVRV) Z-score

The MVRV Z-Score compares Bitcoin's market cap to its realized value, using Z-scores to identify periods of extreme overvaluation or undervaluation. This has historically been very effective in identifying periods where market value is moving well above realized value, as noted by the orange line entering the pink box.

Pi Cycle Top Indicator

The Pi Cycle Top Indicator uses the 111-day moving average (111SMA) and a 2x multiple of the 350-day moving average (350SMA x 2). It signals when Bitcoin's price is peaking, as the shorter 111SMA crosses above the larger 350SMA x 2. This has historically been a reliable indicator for predicting Bitcoin cycle tops, effective in picking the timing of market cycle highs within 3 days.

In the news 🗞️

• Trump’s pro-crypto stance sparks hope for innovation-friendly policies. Crypto investors are optimistic as Donald Trump prepares to take office, expecting his administration to set a positive tone for the industry. With pro-market advocate Paul Atkins as his SEC Chair pick, the administration may take steps like issuing an executive order or creating a crypto council to foster innovation.

• AI agents and DeFAI tokens lead altcoin rally. The AI-driven DeFAI sector is outpacing the market recovery, fueled by infrastructure tokens like VIRTUAL (+30%) and AI16z (+20%), alongside DeFi-focused projects such as GRIFFAIN (+28%) and ANON (+17%). The DeFAI sector, now valued at $3B, continues to define the intersection of AI and DeFi.

• Multicoin proposes reducing SOL inflation. Multicoin Capital suggests replacing Solana’s fixed emission model with a dynamic system to lower its 4.78% annual inflation, which equates to over $5B in SOL issuance. The proposed “smart emissions” model would adjust issuance to ensure network security while minimizing inflation.

• Coinbase launches Bitcoin-backed loans with Morpho. Coinbase now offers Bitcoin-backed loans up to $100,000 in USDC. Powered by Morpho, a DeFi lending protocol, borrowers can use up to 86% of their Bitcoin’s value as collateral. This offering provides an efficient way to access fiat without selling Bitcoin and incurring capital gains taxes.

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