If you’ve been trading in the crypto market for quite some time now, you probably know that crypto assets are highly volatile. However, there’s nothing you should worry about if you master the art of diversification.
Crypto portfolio diversification is investing in various asset classes or assets to reduce your risk if one of your investments doesn’t perform well. It’s also an excellent way to protect your investment from unexpected market swings, reducing exposure to losses that may break your account.
Diversifying your crypto portfolio can also maximize your returns. Besides, the more crypto assets you have invested in, the higher the chances for better returns.
To get started, here are the ways to diversify your crypto portfolio:
1. Diversify By Risk Level
One of the ways to diversify your crypto portfolio is to consider your risk tolerance. Rather than investing in random crypto assets, use the best crypto portfolio tracker to determine which digital currencies are stable and can help balance your portfolio.
In terms of stable crypto, you may invest in Ethereum or Bitcoin since these digital currencies have been in the market for a long time. Depending on how much risk you can handle, you can also consider investing in emerging or riskier coins. Just make informed decisions before going for it to avoid losing your hard-earned money.
2. Consider Timing Diversification
Even if it may sound new, timing diversification has been around for a while. Once executed well, it can be a reliable strategy to diversify your crypto portfolio. It works by timing the market and getting your crypto investments at the right moment.
Instead of buying assets at once, people that own Bitcoin considers investing at intervals. You may schedule to purchase 10% of your portfolio each month. In this case, it’ll take you several months to create a complete crypto portfolio.
Generally, timing diversification may help avoid disadvantageous timing by taking away poor timing decisions. However, it’s grueling as timing the crypto market is challenging, particularly if you’re a beginner. It may also be challenging to determine the right moment to act.
To make the most out of timing diversification, set price alerts when investing in crypto you’re interested in. The price alerts ensure you stay updated with the shifts and trends in the market. Moreover, they enable you to react quickly to sudden changes and help you prepare for any market movement.
3. Diversify By Industrial-Use Case
The blockchain’s landscape incorporates different use-cases from several industries, including finance, healthcare, real estate, governance, supply chain, etc. Decentralized apps belonging to various use-cases are made on the blockchain network. Such apps employ utility tokens based on their ecosystem and are called altcoins.
Altcoins help traders have a chance to invest in blockchain projects at low value. That is why they can be an excellent addition to your crypto portfolio. Depending on how technology matures, altcoins may yield significant returns. However, it’s wise to research the different altcoins first before investing. This way, you can leverage long-term benefits from such projects.
4. Invest In Non-Fungible Tokens (NFTs)
The other way to diversify your crypto portfolio is by investing in NFTs. Similar to altcoins, they may represent a unique property. Rather than being used for accessing networks, they work within a community. Such tokens are also used for art, gaming, and music.
Several NFT collections have seen excellent returns. However, since NFTs are new, they can be risky. Without a good roadmap, community, and team, the collection may likely fail.
5. Diversify By Market Capitalization
You may diversify your crypto portfolio by market capitalization. Among the different digital currencies, Bitcoin has the biggest market capitalization. However, once you focus on Bitcoin only, you might not be able to get huge profits.
Consider other cryptocurrencies with different market caps to maximize your profits and mitigate the risks. Even if Bitcoin is more stable, coins with lower market caps have shown strong growth potential. To get the most out of these coins, you need to research and determine whether or not the currency has real-world uses.
6. Diversify By Location
One of the factors that influence crypto assets is location. So, when diversifying your crypto portfolio, consider location diversification as your strategy. It allows assigning a percentage to coins based on their regions. For example, several crypto projects in Asia have a vast community of people who can make a difference in the success or failure of a digital currency.
With that in mind, it can be beneficial to combine crypto assets belonging to various geographical locations like Europe and Asia. When done properly, it’ll help you build a crypto portfolio that works.
Diversifying your crypto portfolio isn’t only helpful in minimizing the risks, but it can also be the key to maximizing your returns. It can be an effective strategy for beginners and experienced crypto traders. However, always do your homework before considering other crypto assets for your portfolio to make a well-informed decision and meet your financial goals.