1. What is Crypto Portfolio Diversification?
2. Why do I need to diversify my Crypto Portfolio?
3. Types of cryptocurrency
4. How to manage my portfolio?
What is Crypto Portfolio Diversification?
Don't put all your eggs in one basket , don't concentrate all efforts into one area,don't depend for your success on a single plan. These are all terms we hear about and are considered the first pillar of investment. It is the art of balancing risks through diversification of owning a different percentage of assets. How diversified you are is up for debate, as there are pros and cons to both diversity and a focus on a single asset but nevertheless, it is generally accepted that some diversification is beneficial.
The following article will go over some basic steps that will help you with such diversity.
Why do I need to diversify my Crypto Portfolio?
We all have financial goals that we seek to achieve by investing in a timely manner. Investing in bitcoin is the fastest way to reap profits, but some want the fastest way, some want to make quick money, and some intend to save for your child’s university tuition fees or pay the installments, buying a house, Travel around the world or even a luxury trip.
Diversification can be a good base to provide liquidity and more income and also help reduce the risk of market volatility.
technically, cryptocurrencies are one asset class. However, the large disparity between these assets makes them ideal for all types of investment. For example, you can allocate your wallet with 50% bitcoins, 15% ETH, 10% ETH Tokens, 5% stablecoins, 13% altcoins and 7% NFTs.
Types of cryptocurrency Portfolio
CLASS A: Bitcoin and Ethereum
You can put Bitcoin (BTC), and Ethereum (ETH) here, but if you are familiar with the market, they both work in patterns that may look similar. If you want to diversify, you can switch between them, but this does not guarantee the diversity we mean so you can classify these currencies in category A and you can include all Coins of similar category.
CLASS B: Stablecoins
Under this category comes the stablecoins and you can choose between them. The basic rule is to keep a percentage of the cash as you buy more when the price drops or follow the concept of DCA.
CLASS C: Smart contract tokens
They are protocols such as Ethereum, Binance Chain or Polkadot that allow using blockchain technology to develop decentralized applications and run smart contracts on its platform, so there will be a need to use such coins and they will become valuable.
CLASS D: Tokens
It includes most cryptocurrencies of various names. They represent high-risk investments whose value may reach zero if not properly exploited.
How to manage my portfolio?
Managing a diversified portfolio requires more time and research. A good investment requires research and scrutiny and as the number of coins you will be tracking increases, it means spending more time learning and exploring new investments that may not always be successful.
To make it easier, you can use a third-party wallet tracker, manually record your transactions using Excel, or subscribe to some paid software that provides you with this feature. Here is a list of some of the third party trackers:
- Blockfolio: heavyweight crypto portfolio tracking
- Kubera: all your cryptos and other financial accounts and assets (banks, brokerages, real estate)
- Delta: beautifully designed and good alternative of Blockfolio
- CoinStats: available on as many platforms as possible