Cryptocurrency is a highly volatile market. There are a lot of uncertainties involved in the industry, and there’s no guarantee that your crypto investments will go up in value.
There are only two things you can be sure about: cryptocurrency prices are constantly changing, and the technology is still in its early stages.
It’s pretty easy to buy into the crypto hype. It’s everywhere, and there are plenty of ways to spend your hard-earned cash on coins or tokens. But before you dip your toe into that pool, it’s a good idea to figure out what you want from this new market.
So how do you build a well-balanced crypto portfolio?
Treating all cryptocurrencies as a single asset class is a mistake for many reasons. First, the marketplace is very diverse. Some coins are designed and intended to be used as currency, some are platforms (also called application or utility tokens), and others are investments. Each type has its own set of advantages and disadvantages, so what works for one person might not work at all for someone else.
Your cryptocurrency portfolio is your collection of all the digital currencies you own. These can include coins such as Bitcoin, Ethereum, and Litecoin. You may also have tokens from ICOs (Initial Coin Offerings) or alternative chains like Bitcoin Cash.
The crypto market is evolving and improving. Here are a few cryptocurrency portfolio tips for you. Before creating your portfolio, check out our crypto comparison list of the major cryptocurrencies to decide which ones might work best for you.
Allocate your assets based on what you’re comfortable losing. If you plan to put money into crypto, make sure each investment fits your overall portfolio strategy.
For example, if you want to achieve long-term growth, it’s best to choose stable coins like Tether or TrueUSD that track the US dollar. These won’t change much compared to other cryptocurrencies, but they don’t carry as much risk as coins with smaller market caps and lower trading volume.
Cryptocurrencies are not immune to the laws of diversification. By diversifying your portfolio, you can reduce the risk that comes with investing in a single cryptocurrency. As you diversify, keep in mind that the bigger picture will be easier to see.
Know your risk profile
Crypto investing has the potential for significant gains and comes with substantial risk. If you’re not comfortable taking on risks, you should stick with more conservative ways of investing for now, such as buying stocks and bonds. Conversely, if you’re looking at crypto investing as a way to build wealth over the long run, you may be better off putting most of your funds into high-risk investments instead.
Build on your knowledge
It’s important to remember that cryptocurrencies are still an emerging asset class. While they have snowballed since their inception, there is still a lot of uncertainty surrounding them. That’s why you must do your research before you invest in any crypto.
Read up on the latest developments in the industry and how they could impact the price of each currency you plan to buy. This will give you a solid understanding of how the market and specific cryptocurrencies work. It will also help you build a balanced crypto portfolio that meets your needs.
The bottom line
There are several tactics to diversifying your holdings, and you should use them all to make sure your portfolio is balanced. Holding multiple coins, having multiple exchanges, buying during dips, and improving basic financial literacy are just a few of the strategies we discussed here that can help you create a suitable crypto portfolio. You might also want to look into hedging against volatility by managing your risk exposure with options. So explore your options to find out what works best for you, and don’t be afraid to experiment with your portfolio until you get it right!