Cryptocurrencies need to be a part of every investor's portfolio. Digital assets are lucrative, and they've proven to grow and generate profit in the long term. It's also a good idea for investors to have innovative assets, such as crypto, as a part of their financial plans.
This article will go over how to create a crypto portfolio and balance it out to lower risks and mitigate the volatility that's a common feature of crypto. The balance made in this way prevents the investors from putting all their eggs in one basket when it comes to different crypto uses and potential profits.
Stay Informed
The first and most important thing an investor needs to do in order to invest in crypto is to stay informed about the industry. This is where expert resources such as Cryptomaniaks.com can help.
The key to stating information about crypto is to go beyond the prices and changes in the market. A good investor should also follow the industry's vibe, overall trends, and the technology intrinsically linked to cryptocurrencies.
Don't Hesitate to Buy Market Leaders
The simplest advice when it comes to building a crypto portfolio is to buy the market leaders simply but to spread the investment between a few of the currencies that perform the best. Most investors limit themselves to the first 10 to 20 of the best-performing cryptocurrencies.
Most investors also exclude the stablecoins from this list since the value of a stablecoin depends on the value of a fiat currency, usually the US dollar, and there's no profit to be made there. A portfolio made this way will remain pretty stable, even though the top performers may change places.
Different Use Cases
Cryptocurrencies can have a variety of different use cases, and when choosing which to add to your portfolio, it helps diversify in terms of uses. That way, the portfolio isn't only balanced based on the crypto you're using and the industries that will utilize the coins.
The major types of tokens to consider are:
· Payment coins are used to make day-to-day payments, such as purchasing goods and services.
· Decentralized platforms are used to power the decentralized platforms.
· Gaming coins are in-game currencies that allow many crypto players to earn games.
· Metaverse coins are coins used as a currency with a Metaverse. These can often be exchanged for coins used beyond the Metaverse.
· Privacy coins are made exclusively to offer untraceable transactions.
An investor doesn't need to have a stake in all of these coins in order to have a truly balanced portfolio, but diversity is the best hedge against volatility.
Smart Contract Blockchain Networks
One of the most successful projects that came out of the introduction of cryptocurrencies is the use of decentralized blockchain networks. These are used in various industries as they provide a way to transfer funds and data safely without centralized intermediaries.
Each of the blockchain networks has its own upsides and downsides, and the best way to go is to diversify the investment between a variety of them. The biggest network includes:
- Ethereum (ETH)
- Cardano (ADA)
- Solana (SOL)
- BNB (CRYPTO: BNB)
- Avalanche (AVAX -2)
Don't Overlook the Altcoins
Since cryptocurrencies were first in use, two major ones have dominated the market – Bitcoin and Ethereum. Besides those two, there are also countless others, usually called altcoins. These can have a significant number of users and different use cases and are known to have a more volatile value.
The optimal way to divide the portfolio is to divide it into thirds – have one-third for Bitcoin, one for Ethereum, and one among all the other altcoins. When doing so, all the other features we mentioned should be taken into account.
Investing into ETFs
Cryptocurrencies have just recently ventured into ETFs as a new way to invest in the field. Exchange-traded Funds (ETFs) are similar to mutual funds as they can be traded on the stock market, but cryptocurrencies back their value.
That way, the investors can purchase a portion of an ETF without having to buy actual coins or cryptocurrency-related companies. Many investors coming to the market from a traditional financial field- such as banks or pension funds- want a way to get into a more volatile crypto market, and this is the way to do it.
For those who already have crypto investments in one of the ways we outlined before, ETFs are just another method of diversifying cryptocurrency portfolios and mitigating the risks involved. At this point, only Bitcoin has one, but others will follow soon.
Small Crypto Tokens
We already mentioned dividing the portfolio between big and small cryptocurrencies. The portion of the portfolio dedicated to small crypto tokens is sometimes similar to the so-called angel investing. This means that the investors choose small tokens that can explode onto the market and bring huge profits.
The portfolio should have between 25 and 50 tokens at the most, and the way you choose the altcoins makes all the difference. The same rule applies to investing in a small startup company. The token should have an edge over its competitors, which will make it scalable and find use for it in the broader industry.
Finding the currency that can provide such features is much more difficult than it seems and requires a lot of work and resources, and sometimes it's a matter of luck.
Don't be Afraid to Change Things Up
Portfolios aren't written in stone. Even when the investors apply all the measures we mentioned and create a well-balanced approach, sometimes it won't turn out as planned. When this happens, the only thing to do is change the portfolio and accommodate the approach to the new reality.
It's best to take a two-fold approach and rebalance the budget at a set time regardless of how well it's doing or to do it once there's an unplanned loss due to the portfolio performing poorly. That way, the investors react to change but are also proactive about their investment.
Beyond Crypto
A good investment portfolio needs to contain cryptocurrencies and be diversified in terms of what crypto you're buying. However, no portfolio should consist of only cryptocurrencies. It's equally important to diversify between types of investment, of which crypto is just a small part.
The portfolio should also contain bonds, stocks, foreign currencies, and investments made directly into the startup. An investor doesn't need all of these in their portfolio, but a well-balanced portfolio should have at least some to mitigate the risks.
Conclusion
A well-balanced portfolio of crypto assets is one that's made to mitigate the risks involved in crypto trading. Investors should split their investments between cryptocurrencies so they don't put all their eggs into one basket. This also means diversifying between Bitcoin and smaller altcoins. Smaller cryptocurrencies can be lucrative and bring in huge profits, but Bitcoin provides steadiness to the portfolio, as it's the largest and safest cryptocurrency.
Diversifying between different blockchain networks and types of coins is equally useful based on their primary uses. In the end, there's nothing wrong with changing the portfolio if it doesn't bring profit. A whole investment portfolio should also contain assets other than crypto.
