Cryptocurrency!! You must be well aware of the fact that crypto coins or crypto tokens or crypto assets are highly volatile. Crypto has massive potential, either it can swell up your funds or shrink up to nothing! Many of the newbies are already confused after losing their money in crypto markets, whether to invest or not? Just like the traditional financial market, risks can be counterbalanced by maintaining your diversified portfolio, similarly in the crypto space, if you know how to diversify cryptocurrency portfolio, you can easily balance out the effects. You might gain vast profits out of bitcoins or crypto coins.
What Does “Diversify Cryptocurrency Portfolio” Mean?
Diversification can be quoted as “ To be Jack of all trades, master of none”. It means you need not to master all the exchanges and every crypto coin but have the knowledge of few of the best coins to diversify your portfolio. Let us try to understand in the simple words. Crypto Portfolio represents the varied collection of the investments that you have across all the exchanges. For instance, if you own 12 types of coins and tokens, then your portfolio is made of 10 cryptocurrencies. Now comes the portfolio diversification. Why do we need to invest in a variety of crypto assets? Naturally, to stabilize the effects of the markets and fetching the benefits from the investment.
Why Diversify Cryptocurrency Portfolio?
As per the famous quote, it has been suggested that you must not put all your eggs in one basket because if your basket fell, you might lose all your eggs. Similarly, in the crypto markets, investing in a single coin will expose you to the high level of risks which might exhaust all your funds. Thereby, diversification of portfolio is recommended for accomplishing your financial goals via crypto investments. Following reasons may clear your doubts related to why diversify cryptocurrency portfolio?
- Highly speculative and volatile nature of cryptocurrency.
- Diversification minimizes the exposure of bearish markets or unexpected market swings.
- Diversified portfolio protects from the“exit scams,” i.e. exchanges exiting from crypto space either due to the cyberattacks or swept out by regulators (For instance, Basis Project which was non collateralized stablecoin project, raised around $130 million from the market but closed due to regulatory hurdles).
- Enables to enhance the exposure to potential high growth coins and boost your returns.
Thus, more variety of coins in your portfolio, higher the chances of exceptional returns. So, just start thinking to diversify cryptocurrency portfolio.
How To Diversify My Portfolio?
You might be accepting the truth that diversifying your portfolio is a necessity of the crypto markets. Are you thinking- “how to diversify my portfolio?”
Diversification of crypto portfolios is an art that must be known before putting your money into crypto space. There are considerable approaches which can be followed while expanding your bitcoin portfolio:
- Safe Stake/Low-Risk Level: If you are a newbie, you have limited knowledge of the crypto space and might be thinking twice at every point of investment. So, you can start the diversification by investing in significant crypto coins like BTC, ETH, XRP etc. which are exposed to the fewer risks and expected to perform efficiently. Also, if you want to hedge your funds against inflation, you can invest the funds into stablecoins and can diversify the portfolio with low risks.
- Moderate/Medium Risk Level: Mostly conservatives of the crypto markets believe in taking risks but not too much and also not too less. The medium risk level includes the investment in altcoins with active developments or equating the funds among the preferred choices of coins like BTC, ETH, EOS, LTC etc.
- Gambling/High-Risk Level: If you are maximalist, you might be diversifying your portfolio just for the namesake, i.e. investing most of the funds in the most stable currencies of the market and only a few of the funds in other assets. This might be profitable, but the stakes are very high. Whales or big investors are also the risk-takers but in a calculated way by investing a significant portion of their funds in a few numbers of currencies and rest to hedge their risk.
Sticking on the one level is not always recommended to diversify cryptocurrency portfolio. You must continuously upgrade your portfolio as per the changes in crypto markets. Rebalancing a portfolio must be a regular exercise to increase the outputs of your investments.
Portfolio Diversification Strategy
Cryptocurrency investment strategies have the potential to downgrade your portfolio, if not adequately planned. Investing without thoughtful planning, only known as gambling. Many of the crypto traders may argue that due to the volatile nature of the market, no proper strategy can be followed. But Hold On! Do you believe that we do not have any available and appropriate portfolio diversification strategy?
One basic rule or strategy can be kept in mind while expanding your portfolio: Basket of coins must have a selected number of altcoins along with stablecoins like Tether to counterbalance the risks associated with crypto markets. A portfolio with a stable collection of coins and tokens could aid the holders to survive in the bad times and outshine in good times.
Some coins, like the founding father of crypto,i.e. Bitcoin, must have some percentage of a portfolio as any trend in the market is initiated by BTC. One of the most popular coins, Ethereum can be used as base currency along with BTC, which can sustain you during the time of crisis while stabilizing your portfolio. Passive income providers or coins and tokens which are being distributed for free by airdrops and hard forks (check the authentication!) could also be added to portfolios (like Stellar, Bankera, NEO etc.). Most importantly, market hedger of the crypto markets, stablecoins are the must-have while you diversify cryptocurrency portfolio. Stablecoins like Pax, TrueUSD, USDC, Tether etc. which are backed by fiat currencies can armour you from the dreadful changes in the market. Stablecoins assures the protection from volatility while providing the needed liquidity.
There are around 5000 coins and tokens available in the crypto space with varying characteristics holding the different prospects, and you need to choose amongst them to diversify cryptocurrency portfolio. Having a balanced portfolio with a sorted strategy can save your time and money.
Stop Thinking! Start Diversifying!
Best Cryptocurrency portfolio can be a misnomer as it changes with the situation and conditions of the exchanges, tokens, coins and also affected by the regulations and protocols of the nation’s government. But it can be stated that portfolio which held the variety like that of tokens, coins, freebies and stablecoins can be considered as the best one because of its potential of hedging the loses.
If you are a newbie or want to diversify your cryptocurrency portfolio, you need not worry. Various management apps like DeltaPortfolio, Block Folio, Coin Tracking, CryptoCompare etc. are available in the crypto space, which can help you in tracking the progress of various coins and managing your portfolio accordingly. Also, portfolio managers who are financial professionals and analyze the charts related to crypto markets daily can be consulted either if you want to diversify on an institutional or individual basis.
Thus, it is recommended to stop losing money and start to diversify cryptocurrency portfolio.
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