Having exposure to cryptocurrencies and owning a Crypto Investment portfolio is a trend that is growing in popularity and global attraction by the day! And with more crypto millionaires being made, this growth is leading to a lot of influx of new money into this sector, making it a goldmine for everyone.
This influx of new money into crypto investment is driven by both old traditional investors (from other markets) and new younger investors still learning the skills needed to succeed. These two investor class are both stepping into this market and using it as a way to diversify their portfolio and have a limited exposure to the massive volatility risk present in the crypto market.
What Is A Balanced Crypto Portfolio
A balanced crypto portfolio is a term used by professionals to describe a portfolio containing multiple types of cryptocurrencies, tokens, NFTs, and other crypto assets that all perform different roles and have different risk levels within the portfolio.
If you pick the right assets and create the perfect portfolio, you could easily handle any kind of market condition and come out from the other side stronger.
Your goal as an investor is to:
- Research and pick the perfect crypto assets to add to your portfolio
- Handle fund allocation and risk management.
- Monitor and rebalance the portfolio when necessary. This could involve buying new cryptocurrencies or selling off holdings.
How Can You Manage The High Risk in Crypto Investing?
One of the most important part of creating a well balanced crypto portfolio is understanding how well it works and fits into your overall investment portfolio and financial philosophy.
Due to the massive volatility present in the crypto market, investing only a small portion of your investment capital (between 5% ad 10%) is always advised. This way you can have a limited exposure to the crypto volatility and only increase that exposure when you increase you investments.
It is also important you take profits regularly and rebalance your portfolio once you see a steady rise in the value of assets you are holding.
How Can You Join This Crypto Trend?
For you to benefit from having a portfolio with crypto exposure, you will need to create a balanced crypto portfolio that suits your exact needs, risk tolerance, and can handle various types of market conditions. And this is where the problem starts.
Building a balanced crypto portfolio will present new challenges for investors both old and new! And this is because, unlike other traditional asset classes, the crypto market is still regarded as the wild west with little to no supervision, government oversight, or adequate structures like ETFs/Index Funds that can make investing easy for beginners.
This is where this guide comes in. In this guide, we will be breaking down the most effective ways to diversify your crypto portfolio, and the pit falls you should avoid in your financial journey in the crypto market.
How To Build A Balanced Crypto Portfolio In 5 Quick Steps
- Investment Philosophy: Understand what type of crypto investor you are.
- Investment Strategy: Clear instructions on how to invest. Something easy you can follow.
- Understand the Coin Types: are you looking for meme coins, blue-chip coins or what?
- Diversify: Invest in other Financial Crypto Products.
- Track/Monitor/Rebalance: This is a must do!
1. Understand Your Investment Philosophy:
The first step in creating a crypto portfolio is determining what your investment philosophy will be. This investment philosophy will cover what your investment style, and what your rules for picking an investment asset will be.
This step is very important because if you pick the wrong investment philosophy, you might find it very difficult to be disciplined and follow all your trading rules during rough markets.
The 6 types of cryptocurrency investors:
- Hodlers – research and buy coins to hodl for the long term.
- Bitcoin Maximalist – focuses only on hodling Bitcoin
- Bargain Hunter – invests in cheap shit coins he can sell for gains when it pumps
- Early Adopter – focuses on investing in cryptocurrencies with tech and blockchain focus
- Ecosystem Expert – focused on coins with strong communities and projects
- Technical Analyst – focused on price action
Check out this article: 5 Steps To Finding The Crypto Investment Style That Suits You. Beginners Guide
2. Pick A Strategy That Matches your Investment Philosophy:
Now that you have decided what kind of trader you want to become, the next step is picking the perfect investment strategy that would work well for your personality. This strategy should also match well with your investment philosophy and should paint you a clear picture of
- What to buy,
- When to buy it,
- What quantity to buy, and
- An exit plan for both good and bad times.
Once you have a strategy that can help you answer these questions, you will be able to face almost any market condition and come out from the other side stronger.
Check out this article: 6 Popular Crypto Investment Strategies in 2023 and How To Use Them
3. Understanding What Coins To Pick and Their Different Use Cases:
Not all coins are created equal!
Bitcoin and Ethereum are the two most famous cryptocurrencies in the market right now. Investing in them would give you some kind of crypto exposure for your portfolio.
But this won’t work for a well-balanced portfolio. To get a balanced crypto portfolio, you need to include a selection of different coins to reduce overall risk. This makes it very important that you understand the type of cryptocurrency you are buying and what they are being used for.
The Cryptocurrency use cases will determine how volatile the coin you choose would be and how this would affect the performance of your crypto portfolio.
The different cryptocurrency use cases:
- Payment coin: offers fast payment at low cost worldwide.
- Stable coin: a reserve cryptocurrency pegged to the U.S dollar.
- Metaverse/Gaming coin: used to power blockchain gaming economy
- Security/Utility token: can represent services or physical items like NFTs.
- Governance token: offers voting rights in a project.
- DeFi: offers Decentralized finance, an alternative to traditional finance.
Check out this article: The 5 Types Of Cryptocurrencies We Have and How To Understand Their Utilities.
4. Invest In Other Financial Crypto Products:
A portfolio does not have to contain only crypto coins. While there are thousands of coins you can invest in, diversifying your portfolio risk by investing in crypto projects and DApps across the various blockchain networks.
If you are more risk aggressive, you can take it a step further by investing in crypto tokens and NFTs. This is a higher risk type of investment as there is a high fail rate for small projects. However, if you do find a gem that would work, you could easily see a token do a 100x to a 1000x in no time.
5. Track and Manage Your Crypto Portfolio:
“Portfolio Tracking” is one of the most important steps you must take when it comes to managing a balanced crypto portfolio. And with the advancement in technology, it is very easy to do.
With a portfolio tracker program from a 3rd party, you can easily trace the individual movement of all the asset in your holdings and have it displayed an easy to understand manner. Some trackers can be linked to your personal wallets and cryptocurrency exchanges, making this process more convenient and automated.
Some examples of 3rd party portfolio tracker you might want to consider includes CoinGecko and CoinMarkeCap.
They both offer 3rd party portfolio tracker services that is available on desktop and mobile devices. To use this service you need to manually input the details of your holdings and at what price you bought them to get accurate reading.
Once you have an accurate way of tracking your portfolio, you can begin to manage it well and rebalance it when necessary.
Timeless Advice, Tips and Tricks For a New Crypto Portfolio
Picking simplicity over complicated philosophy, strategy or even coin type is very important.
A simple strategy could be investing the bulk of your portfolio into the top cryptocurrencies you like and a bit into riskier crypto tokens.
There are no set rules to doing this, all you need to do is find what works for you, stick to it and manage risk properly.
Pros and Cons Of a Balanced Crypto Portfolio
Benefit:
The most important benefit of a balanced crypto portfolio is the stability diversification brings. This way your portfolio can better handle drawdowns and perform in a bearish market.
As an investor, it also means that your success in this market is not tied to any single cryptocurrency or crypto project.
Flaw:
The major draw back is finding the perfect crypto assets to invest in. With the high project failure rate in this industry, finding the right crypto project/coin to invest in will require significant research, For a newbie, that could be a very steep mountain to climb.
Conclusion
When it comes to creating a crypto portfolio, you want to take it one step at a time. If you are a beginner, you want to stick to the big blue-chip coins like Bitcoin and Ethereum first. And as you gain more experience, you can begin to check out other smaller more riskier coins and projects you can add to your portfolio.
Creating a balanced portfolio is not something you can just set and forget, it requires you to continue monitoring, buying and selling off holdings, reducing risk in downtrends, buying stable coins for liquidity and so much more. And the best part is you never stop growing and getting better at it.
So take your time and manage risk properly.
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