Portfolio Construction Strategy - The cryptocurrency industry utilizes Modern Portfolio Theory, a classical economics theory, to construct portfolios based on historical data and volatility, assuming similar future trends [1] - The industry aims to construct portfolios based on risk-adjusted returns, distinguishing long-term investing from short-term speculation [1] - The Sharpe Ratio, calculated using historical returns, risk-free rate (approximated by the 2-year yield), and standard deviation of excess return, helps determine optimal portfolio weights [1][2] - The Sortino Ratio, a variation of the Sharpe Ratio, does not penalize positive volatility, offering an alternative perspective on risk-adjusted returns [3] - The industry notes that a portfolio consisting of Bitcoin and Ethereum can maximize risk-adjusted returns, with specific allocations determined by the Sharpe or Sortino ratio [3] Market Analysis and Asset Allocation - Historical data suggests an 81% Bitcoin and 19% Ethereum allocation maximizes the Sharpe Ratio, while an 83% Bitcoin and 17% Ethereum allocation maximizes the Sortino Ratio [3] - Adding XRP into the portfolio mix, based on historical performance, shifts the optimal allocation to approximately 76% Bitcoin, 17% Ethereum, and 7% XRP using the Sharpe Ratio, or 82% Bitcoin, 15% Ethereum, and 3% XRP using the Sortino Ratio [4] - The industry acknowledges the potential for altcoins to outperform Bitcoin, but emphasizes the importance of considering historical data and potential downsides, especially during bear markets [4][22] - The industry suggests that maintaining a portion of the portfolio in cash (e g, one-third) allows for strategic buying opportunities during market downturns [11][20] Risk Management and Investment Perspective - The industry emphasizes the importance of Bitcoin dominance in crypto portfolios, advocating for a higher allocation to Bitcoin compared to other individual crypto assets [22][23] - The industry cautions against solely relying on influencer opinions and encourages investors to focus on data-driven analysis and risk management strategies [13][15]