Being a part of the crypto community means one thing: You get to talk to many people, helping them find answers to questions about whether they should invest in a particular project or not. But merely seeking investment guidance or expert opinions is not always plausible. There is never one size that fits all. What worked for others may not always work for you. That is why it is also essential that you have devised the investment strategy that can help you maintain a balanced crypto portfolio.
Below, we have discussed some of the easy ways you can achieve your crypto investment goals with the help of an effective portfolio diversification strategy. But before we get into that, we will answer what is a crypto portfolio in the first place.
What is a cryptocurrency portfolio?
In simple terms, all the coins and tokens you own represent your cryptocurrency portfolio. For example, if you own ten different assets like Bitcoin, ETH, DOGE, USDT, etc., your portfolio consists of those particular assets. How much your portfolio is worth depends entirely on the current market price of all the cryptocurrencies you own.
If you have just started investing in crypto, chances are initially you will have only have a single asset in your portfolio. As you begin to invest in more cryptocurrencies, your portfolio tends to become more diversified.
Why you should have a diversified cryptocurrency portfolio
There is a common misconception among beginners that have just started investing in crypto. Many of them believe that merely holding some Bitcoin will make them millionaires in the future. Sure, investing in Bitcoin can be a good starting point. But you also have to consider the fact the crypto ecosystem is far more extensive than Bitcoin.
There was a time when investors were extremely bullish on Bitcoin. In early 2021, the value of Bitcoin skyrocketed like never before, and the world’s largest cryptocurrency by market cap recorded its ATH of $65,000 in April. What followed after that was a nosedive. The market was shaken by a sharp decline, followed by debates about Bitcoin’s energy consumption.
Diversity is the key to success
One of the significant benefits of a balanced crypto portfolio is diversity. If you keep holding onto Bitcoin, for example, you will be highly prone to extreme ups and downs. As an investor, it is important that your cryptocurrency portfolio also consists of altcoins, especially if you do not wish to experience market ‘mood’ swings triggered by Bitcoin’s extreme volatility at times.
Always keep your eyes wide open
The future is not always as certain as we want it to be. In fact, it is quite the opposite. When you have a diversified portfolio, you essentially have a better chance to choose an asset that you believe is likely to perform better than Bitcoin in the future. While there is never a guarantee that it will indeed be the case, you will at least be prepared to take a chance on other coins and tokens. That said, always research different cryptocurrencies and keep an eye out for projects that can solve real-world problems.
Rebalance your crypto portfolio
Having a diversified portfolio means that you have all the more freedom to use the gains from your outperforming asset to rebalance your portfolio. For example, you have three types of assets in your portfolio: Coin A (25%), Coin B (25%), and Coin C (50%). You now decide to sell off a portion (5% each) of Coin A and B to buy more of Coin C, which currently consists of 60% of your portfolio. As the value of Coin C increases, you decide to sell 10% from Coin C to buy Coin A and B. This way, you can rebalance your crypto portfolio with the help of gains from your outperforming assets.
Ways to effectively manage your cryptocurrency portfolio
Dollar-Cost Averaging (DCA)
Dollar-Cost Averaging (DCA) is an investment strategy where you divide your investment into a fixed number of periodic investments to reduce the impact of volatility on your overall investment. Since DCA is a long-term investment strategy, the lesser impact of volatility and price averaging allows your crypto portfolio to experience more positive and sustainable growth over a more extended period of time.
For example, you have $1000 to invest in Bitcoin, but you observe a lot of volatility in the market. Here, you can play smart and divide the money into five equal parts of $200 each and invest each part in Bitcoin on a fixed date every month for five months. DCA can be a good investment strategy when the market is bearish. This way, you might end up spending less than what you might have spent up front when the market was bullish five months ago.
Crypto Portfolio Tracker
You may have different assets in different wallets. As a result, monitoring all your assets and keeping everything organized can be difficult. Therefore, it is very important to keep track of your cryptocurrency portfolio. A cryptocurrency portfolio tracker could be an app or website which allows users to monitor price change of different assets they own. This way, you can manage your cryptocurrency portfolio properly and more efficiently.
Cryptocurrency portfolio trackers usually integrate with different wallets or even exchange platforms where you can easily trade your assets. You can consider some of the following popular crypto portfolio trackers:
- Coin Market Manager
Keep your emotions in check
Extreme fear or greed among investors can make the crypto market highly vulnerable to drastic ups and downs. Besides, blockchain - a distributed ledger technology powering the crypto ecosystem - is relatively new. That said, a lot of development is happening in this area. However, do not let the hype around this technology take control of your emotions. Always try to be more realistic when it comes to your crypto investments and evaluate projects that solve a meaningful problem.
Investors ought to remain calm when there is extreme fear or greed in the crypto market, often leading to extreme panic and uncertain situations. Another reason why many traders fail to manage their crypto portfolio properly is FOMO (Fear of missing out), which is triggered by their emotional overdrive. Peer pressure is another reason why many newcomers usually make hasty investment decisions and buy an asset at high prices.
As we have said in our earlier blog post, it is only natural that a price correction will always follow the rise in the value of assets. As an investor, having a plan and sticking to it can be a good strategy. In fact, successful investors are known for their ability to keep their emotions in check as far as their investment plans and goals are concerned. Technical Analysis helps investors think more logically about their investment decisions and exercise more discipline over their trading strategies.
Think about your exit plan first
As the saying goes, all good things must come to an end. It means nothing lasts forever, and all things and situations are temporary. Yes, thinking about your exit plan before entering the market can be a compelling investment and portfolio management strategy. Successfully executing a trade and booking profits make investors feel good, happy, and motivated about their decisions.
However, not having an exit strategy often causes investors to hold their position for an extended period, even if that means incurring losses. Well, situations like these can be detrimental to your crypto portfolio management and may also hamper your investment strategies in the long run. Successful investors tend to think about their exit strategy every step of the way, even before entering the market.
Crypto portfolio management does not necessarily have to be complicated. However, it is important to have a rock-solid plan on how much you want to invest and in what assets.
Having clarity about your thought process helps you churn out profits and prevents you from making hasty decisions. Balancing and diversifying your crypto portfolio is another good strategy that you need to consider for long-term growth and sustainability. You can make use of crypto portfolio trackers to monitor the daily price, volume, and market cap of assets in your portfolio. If you do not wish to invest all your savings at once, you can opt for Dollar-Cost Averaging and systematically build your portfolio. However, do your own research on cryptocurrency coins and tokens you want to invest in.If you want to invest in cryptocurrency and don't know where to start - join Liquid! Founded in 2014, Liquid is one of the world's largest cryptocurrency-fiat exchange platforms serving millions of customers worldwide.
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