Seven strategies to balance risk in your top crypto portfolio
No one can predict the future of cryptocurrencies which is why it's important to have a diversified top crypto portfolio.
You'll need to weigh the risks and rewards of each investment and make sure your portfolio is balanced. Here are a few tips to help you balance risk in your cryptocurrency portfolio
Diversification is one of the fundamental principles of investing to reduce the risk of a portfolio. When building a cryptocurrency portfolio, managing risk in this new and volatile market is essential to protecting your net income.
If you want to take advantage of innovations in the cryptocurrency industry, it may not be enough to invest in a single crypto-currency, such as the market leader, Bitcoin (BTC).
Instead, if you focus on different digital assets, you can benefit from the growth of the global cryptocurrency market.
By using diversification strategies to achieve your investment goals, you will not only protect your money, but you will also be able to participate in more crypto assets over the long term.
Here are seven strategies for diversifying your top crypto portfolio.
Buy multipurpose cryptocurrencies for top crypto portfolio
One way to diversify your cryptocurrency holdings is to invest in crypto-currencies with different uses or purposes.
Cryptocurrencies are used as a medium of exchange but are not limited to transactions in exchange for goods and services.
For example, bitcoin can also be used as a store of value or as a way to store and grow assets, as it has provided investors with exceptional returns. Another option is Ethereum, the second-largest cryptocurrency network on the market.
It has a smart contract feature that allows for the creation of digital applications, making it an investment in a blockchain network where decentralized applications (dApps) can be created.
Crypto-currency investors can also invest a portion of their cryptocurrency portfolio in stablecoins, whose value is tied to an underlying asset, such as a fiat currency.
The consistent value of stable coins such as Tether (USDT) and USD Coin (USDC) helps mitigate the volatility of the cryptocurrency market.
Investing in different blockchain cryptocurrencies.
A blockchain is a technology that makes cryptocurrencies work. However, blockchain platforms go much further and are in demand in almost every industry because of the solutions they offer.
The most popular is the Ethereum blockchain, which makes it easier to conduct transactions without third parties and allows dApps to be built on its platform.
The EOS blockchain (EOS) specializes in online services such as cloud storage, apps, and smart contracts.
EOS also supports millions of transactions per second and facilitates updating and modifying dApps.
And these are just a few examples of the blockchain at the heart of the rapidly evolving cryptocurrency industry.
Diversify by market value.
Bitcoin is the cryptocurrency with the largest market value today, some $810 billion.
Bitcoin may hold the lion's share of the cryptocurrency market, but there are many other altcoins with different market values worth considering.
A cryptocurrency with a higher market capitalization may be more stable and have stronger fundamentals, but a cryptocurrency with a lower market capitalization may have high growth potential.
For example, Kusama (KSM), with a market capitalization of about $1.3 billion, is a promising cryptocurrency that allows developers to test their dApps on its platform before distributing them on the Polkadot (DOT) network.
Diversify cryptocurrency projects by location.
Selecting cryptocurrency projects from around the world allows you to explore a wider range of cryptocurrency innovations.
It is best to stay away from cryptocurrency projects in areas where cryptocurrencies are banned or restricted, and focus on areas where innovation is growing.
For example, Portugal is considered a cryptocurrency hub and a tax haven for cryptocurrency investors.
El Salvador was the first country to introduce Bitcoin as legal tender, and the South American government plans to establish a Bitcoin city, which will be tax-free and funded by cryptocurrencies.
In the US, Texas, Wyoming, New York, and Georgia want to bring the cryptocurrency industry to their states.
Investing in different sectors.
Opportunities for cryptocurrency exist in numerous sectors. Cryptocurrencies have been most prevalent in the financial sector.
Decentralized finance, or Defi, allows individuals to easily conduct digital transactions on a peer-to-peer basis without the involvement of a third party, such as a bank.
In addition to sending crypto, Defi also includes lending and investing in crypto.
The use of cryptocurrencies in the gaming world has been booming, with more and more users trading virtual assets on global virtual markets.
Diversification across different asset classes.
Digital assets belong to different asset classes and offer investors another way to diversify.
The most common asset class, which includes Bitcoin and Ether (ETH), the original cryptocurrency of the Ethereum network, includes cryptocurrencies that act as stores of value or mediums of exchange.
Another asset class is utility tokens, which give users the right to use a product on a specific platform. Examples of utility tokens include the Basic Attention Token (BAT), the Golem Token (GLM), and Filecoin (FIL).
Non-fungible tokens (NFT) are another category of digital investment. NFT is a digital representation of a property.
NFTs have become popular with the general public thanks to digital art, which offers artists a new way to showcase their work to the public.
In addition to artwork, NFTs can represent the unique digital property of many things, including real estate, collectibles, and even individual identities.
Diversify based on risk level.
When building a diversified top crypto portfolio, it's important to start with your own risk tolerance.
The same principles that apply to asset allocation in a traditional portfolio can be applied here.
To balance a cryptocurrency portfolio, you can start by allocating a larger share to the most stable cryptocurrencies, such as Bitcoin and Ether, since they have been on the market the longest.
You can add more stable currencies to manage the risk in your portfolio. Then you can decide to add a smaller share of new, riskier cryptocurrency projects with different uses.
Depending on your risk tolerance, you can spread your allocation across a small number or many different crypto assets.
Use these 7 strategies to diversify your portfolio with cryptocurrencies:
- Buy cryptocurrencies with different uses.
- Invest in different blockchain cryptocurrencies.
- Diversify by market value.
- Diversify into cryptocurrency projects based on their location.
- Invest in different sectors.
- Diversify across different asset classes.
- Diversify by risk level.
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