Diversification is an essential part of running a successful investment portfolio.
When you diversify your assets, you reduce your risk levels by mixing various investment strategies. In the cryptocurrency world, this might mean that you place around 70% of your cash into well-known currencies like Bitcoin and Ethereum, and the other 30% into lesser-known, up-and-coming altcoins.
Diversification ensures that if one aspect of your portfolio begins losing value, your entire wealth-building strategy won’t suffer. Although diversifying your portfolio is important for any kind of investment, it’s particularly crucial in a somewhat volatile environment, like cryptocurrency.
Diversification Tips for New Crypto Investors
A diversified cryptocurrency portfolio involves investing your money in various assets rather than relying on a single asset to deliver all your returns. This protects you against sudden changes in the market, such as when Bitcoin dropped by 18.3% in April 2021.
Diversified portfolios also give you more opportunities to experiment with different kinds of coins. You can check out some of the up-and-coming altcoins in your space or get involved with technology that is transforming various industries.
In the cryptocurrency space, there are a few ways to diversify your assets.
1. Diversifying by industry
Industry diversification means you invest your cash in cryptocurrencies linked to specific niches or sectors in the market. Some types of coins are linked to the casino industry, for instance, while others have connections to banking and the financial sector.
As companies within the crypto landscape continue to experiment with the possibilities of the blockchain (the technology behind Bitcoin), crypto technology is starting to solve a wide variety of problems. For instance, cryptocurrency holds a lot of potential for the technology landscape. If you’re a tech enthusiast, you might combine financial crypto investments with altcoins connected to the technology space and Silicon Valley.
2. Diversifying by solution types
Cryptocurrency is a small part of a wider concept known as blockchain and decentralization. People interested in cryptocurrency can spend their money on different kinds of crypto-focused assets. For instance, you could invest in a traditional cryptocurrency coin, like Bitcoin, or spend your money on a technology solution like Ethereum.
Many cryptocurrency creators experiment with raising funding for new protocols, blockchain platforms, and services for the cryptocurrency landscape, like wallets. You may even choose to work with decentralized applications or “dApps.”
Unique protocols and solutions like “DeFi” allow investors to leverage profits from the growth of a supportive infrastructure environment in the blockchain ecosystem. In 2020, for instance, DeFi protocols delivered returns of more than 600%.
3. Diversifying with privacy coins
The ever-changing cryptocurrency landscape has expanded in recent years to include various tokens with different functionalities and properties. For instance, there are privacy coins, staking coins, stable coins, and so on. Bitcoin is an example of a “stable coin.” A stable coin is a cryptocurrency with a value tied to an outside asset, such as the US dollar or gold.
Many traders in recent years have begun moving towards privacy coins as the need for privacy in the modern landscape grows. Privacy coins are a type of cryptocurrency that supports anonymous and private transactions online. Staking coins have also grown more popular among investors looking for ways to achieve passive growth in cryptocurrencies.
4. Diversifying by geography
Investors in the crypto market can also diversify their portfolios by choosing investments based on geographical location. This would involve choosing to invest a percentage of your cash in currencies that come from different regions around the world. Projects in Asia have larger communities of people, and larger communities are more likely to influence the success or failure of the project.
Creating a balanced portfolio based on regional impact should protect you if local political or social issues affect the value of your coin. If you’re concerned about what’s happening politically in the country where your cryptocurrency firm is based, it may be worth branching out into some other regions.
5. Investing outside of cryptocurrencies
Remember, you can also enhance your position from an investment perspective by combining cash spent in the cryptocurrency world with other kinds of investment. If you’re comfortable investing in the financial world, you might consider looking into Forex and trading different currencies to make money on the differences between various cash values.
Alternatively, you can combine your cryptocurrency portfolio with investments into more traditional investment assets like stocks and securities. Spending your money on different assets will ensure that you have various ways to defend yourself against potential risks that affect the entire cryptocurrency industry.
Keeping Your Crypto Portfolio Diversified
Diversifying your cryptocurrency assets is just as important as diversifying any kind of investment. It’s common for crypto beginners to think that they only have one option for their digital currency and blockchain solutions, but that’s not the case. Make sure you’re not keeping all of your eggs in one basket.
If you’re not sure where to start on your investment journey, the best bet could be to work with a cryptocurrency coach. The right coach can help you blast through roadblocks holding your portfolio back with genuine advice gathered from years of market analysis and study.
Beware of the ponzis that promote every new altcoin – they only care about views and referrals and are unlikely to be invested long-term themselves. Follow the creators of the coin, i.e., the projects they’re working on, and consider consulting with a cryptocurrency coach who knows the importance of building a balanced portfolio consisting of both crypto and non-crypto assets.