A Beginner’s Guide to Diversify your Cryptocurrency Portfolio

Beginner’s Guide / 16.12.2020

Diversification in financial investment is a process where an investor selects many different investment options in various fields. For instance, a general investor may choose to invest some of his wealth in well-performing stocks, real estate, and crypto-assets. 

When diversifying, investors look at some of the best-performing assets, assets with high demand, and other assets that look like suitable investments for the future. Moreover, the investor often thinks about a particular investment’s maturation, whether long term or short term

In the cryptocurrency world, diversification involves selecting different crypto assets with better prospects and putting your money in them. But why is diversification in cryptocurrency important?

Why is Diversification in Cryptocurrency Important?

There are surging cases of crypto volatility, especially in assets like bitcoin, which increases and plunges in prices in just a matter of hours. Therefore, Bitcoin’s volatile nature is a massive threat to investors who put all their money in BTC. 

The financial world’s volatility is one-factor, driving wise investors to diversify their portfolios to hedge against price jumps and volatility. Diversifying also boosts your chances of earning returns from your investments by maximizing the benefits of different coins. 

Big players in the crypto market are also diversifying, intending to maximize their returns. It would help if you even choose from a wide range of coins coming up, which have good investment prospects and enjoy the best future returns. 

What can you Consider when Diversifying?

There are several ways of looking at diversification in cryptocurrency, with each of the ways helping you choose the best asset for investment. Keep reading to find out more. 

Type of Crypto Asset

Looking at crypto-assets is one of the best ways of ensuring you make the right investment decisions, especially when it comes to diversifying. There are several types of crypto assets, each with its advantage and disadvantage over the other assets.

The first lot of crypto assets are called cryptocurrencies, including Bitcoin and Ethereum, and many other less common assets. Another group of crypto assets is privacy coins, which include Monero, Zcash, Dash, etc. These assets aim to bolster privacy in the crypto world by mainly hiding some of the transaction details. 

Since most people on the internet and the financial world need their transactions’ privacy, some of these coins are high demand, thus good investment prospects. The third group of crypto assets is stablecoins

These assets are immune to volatility in the crypto markets. They have an asset backing, either fiat currency, cryptocurrency, or a commodity like gold. Using these as part of your portfolio guarantees you the protection of your wealth value and, in some cases, perpetual rises in value. 

Diversification Based on Solution

Another vital thing to consider is the crypto assets’ solutions in the day to day financial activities. There are wallets, exchanges, and staking platforms, offering some explanation in the day crypto activities. 

Additionally, other platforms offer cloud services, blockchain interoperability, some of which will have high demand shortly in both the crypto and fiat worlds. Investing in such will guarantee you the best returns in the future. 

Diversification Based on the Industry

The different industries touched by the crypto world are also an excellent factor to consider when investing and diversifying. For instance, there are crypto solutions in gaming, medical, gambling, finance, supply chain, technology innovation, etc. When you invest in well-performing industries, you put yourself in a position of earning better in the short and long term.

Diversification Based on Geographic Location

Different coins from different places perform differently. For instance, Asian-based crypto assets have huge loyal customers who accept them as a medium of exchange, and as such, investing in them will guarantee you good returns. 

However, you can decide to add crypto assets from different places globally to ensure you have balance in your portfolio. When choosing investments, consider the legal ramifications of the particular coin in your country of origin.  

Time Diversification 

Time diversification involves splitting your portfolio investment into time intervals to avoid risks associated with investing large amounts at once. You can invest on a regular interval timing, and by the end of some length in time, you will have all your investments ready. 

What are the Most Common Diversification Strategies?

  • The Crypto Beginner 

If you are a beginner in the Crypto world, you should choose some of the assets you like and allocate equal portions of capital to the assets. The risk level in this investment is low since the risk is distributed among a world of good performers in the market.

  • A Conservative Investor 

This investor will invest in the top-performing assets and equally distribute their funds. For instance, as a conservative investor, you will choose only bitcoin, ethereum, and Litecoin, which are the best performers, distribute your amount equally among the three assets, and avoid all other coins.  

  • The Whale

If you have large sums of money to invest, you can choose an extensive range of assets. Foremost, invest a big portion of your money in the top performers, then a little amount in small performers. 

Conclusion

Investing in only one asset in the financial world is a dangerous game and can cause severe future losses. As a good investor, you have to invest your capital in a range of assets in the crypto world. It would help if you considered different things, foremost being the crypto space’s investment option’s solutions. 

Additionally, you can look at different industries and their performance and invest some amount in several sectors. There are different types of crypto assets, and considering that will help you choose the assets that best suit your investment. It would be best if you protect your wealth while investing, and diversification is the best solution.

Adam is an outgoing young lad who likes adventures and discovering new things. Despite his boring life, he loves writing about cryptocurrencies and exploring what blockchain technology can do for the coming digital world where all adventures will be virtual.