As an investor, having a well-diversified Crypto portfolio helps direct profit flow and limit losses. However, most investors are not aware of how to create or diversify their portfolios. A crypto portfolio is an inventory of all your crypto assets. A well-balanced crypto portfolio should include both long, medium and short term coins and this is where portfolio diversification comes in. Furthermore, an investment portfolio is usually guided by an investment strategy. What is the aim of adding the coin to your portfolio, how long do you want to hold the coin, at what price do you want to exit the coin? All these questions and more should guide your investment portfolio.
Three Things to do when creating a Crypto portfolio?
Get a basic understanding of Cryptocurrency
For most people, the interest in cryptocurrency is the high returns; while it isn’t a bad idea to expect high returns from an investment. Every great investor knows that it is a bad idea to invest in something you have little or no idea about. Before creating your crypto portfolio, a basic knowledge of cryptocurrency and blockchain technology will help guide your investment decisions and strategies. Also, a detailed understanding of digital assets helps you determine if you want to go in for the long haul or short term. Since the market is volatile, understanding how the market moves will help guide an investor’s decision.
Do your Own Research
Before creating your crypto portfolio in 2021, you need to carry out meticulous research. You have to ensure that you have adequate information about the team involved, the market cap of the coin, the roadmap of its project as well as other little details. Researching the intricate details of the coin you aim to invest in will help you spot out the coins that are pump and dump schemes. Also, it will help you keep FOMO at bay instead of jumping in to buy a coin.
Create Your Diversified Portfolio
A diversified portfolio protects you from getting exposed to too much risk. Your portfolio should consist of short, mid and long term coins as well as high and low market cap coins each serving a different purpose. A typical example of diversification will see the portfolio divided as
- High Market cap Coins: 50%
- Mid Cap Coins: 30%
- Low Market Cap Coins: 20%
Also, you can split your portfolio based on asset class, tokens, coins or products or use cases. For example,
- Bitcoin: 40%
- Altcoins: 30%
- Stablecoin: 15%
- NFTs: 15%
Benefits of Having a Diversified Portfolio
Two basic concepts to understand when creating a crypto portfolio is asset allocation and diversification. When allocating your asset, you are distributing them into different classes. However, since cryptocurrencies only have one asset class like stocks and bonds you can consider allocating into Altcoin, DeFi and NFTs. on the other hand, diversification allows you to distribute your assets within a particular asset class such as Altcoins with different use cases. Some of the benefits of asset diversification include
- It reduces your risk and volatility. When the market experiences a change, you will likely have some coins doing great and that will help you hold your market position. You can also offset losses with the gains you get.
- You stand more chance to gain. Unlike when your funds are concentrated in one coin, a diversified portfolio allows you to get gains on each coin.
- Traders want to beat the market and a diversified portfolio can track the market and get you bigger gains. So, you have to ensure that the portfolio is well structured.
- A diversified portfolio allows you to shuffle the coins doing well while discarding those that are not. But with a concentrated portfolio, you are stuck with any coin bought.
To ensure success while investing, asset diversification is a must. While Bitcoin seems to be the chief pillar of other coins, you still need to diversify. However, there is more to creating a crypto portfolio than just holding different coins. You have to investigate the coin and have a strategy. You must also remember to rebalance your portfolio as you have to reward coins that are doing well and buy new coins while discarding coins that are incurring losses. For newbies just starting their crypto journeys, you can start by buying bitcoin on Bitmama.io The most important thing to remember when creating a crypto portfolio in 2021 is your risk management and how much risk you are willing to take.
What is USD Coin (USDC ) and How Does it work?