How to Create a Balanced Crypto Portfolio?

  • April 11, 2022
  • Jennifer Moore
How to Create a Balanced Crypto Portfolio?

Cryptocurrency has solidified its position in the mainstream with a current global market capitalization exceeding USD 2 trillion and daily trade volumes at USD 82 billion. Over 300 million people have invested in crypto, and a recent survey indicates a notable percentage of US citizens are also considering cryptocurrencies for retirement options. Upcoming innovations such as the metaverse and Web3.0, combined with fluctuating fiat valuations make the present an ideal time for crypto investments. This article will shed light on the necessary things to consider while building an efficient crypto portfolio and some additional investment suggestions. 

The Need for a Crypto Portfolio

It is essential for investors to not get lured by high returns within a short timeframe and to remember that crypto markets are highly volatile. New digital assets may deliver great returns but mostly have a short shelf-life. A balanced portfolio is thus essential for any trader looking forward to venturing into cryptocurrencies. Unlike conventional investment portfolios, crypto assets have a higher risk profile. Times have however changed with Bitcoin and Ethereum rising to global relevance.

Also Read: 10 Cryptocurrencies to ‘Bear’ Through the Next three quarters of 2022

Asset Allocation and Portfolio Diversification

The above factors should be considered during portfolio diversification. Investors may opt for low-risk stablecoins whose valuations are pegged to a fiat denomination such as USD, EURO, Yen, and others. They are relatively safer options and do not fluctuate as much as non-pegged digital assets, altcoins, NFTs or tokens. Though a single asset class, cryptocurrencies can be further segregated on the basis of their objectives and implementation. Examples include Metaverse, Decentralized Finance(DeFi), DAO governance tokens, and more.    

Also Read: HashCash Wins Smart Trade With Its Crypto Portfolio Management System

5 Tips for Building a Crypto Portfolio

Most crypto analysts and experts suggest diversifying your portfolio rather than concentrating in a bid to reduce associated risks. Balanced diversification requires knowledge. The following tips come in handy in building a well-balanced portfolio: 

1. Stay Updated on the Latest Crypto Prices

Even if you do not have a crypto trading account, there are websites that provide a real-time valuation of existing crypto prices.

2. Conduct Thorough Research

Most crypto assets publish whitepaper and associated research reports detailing their purpose and objectives. They also highlight the currency’s roadmap.

3. Focus on the Crypto’s Use Cases

A cryptocurrency’s valuation depends primarily on its implementation possibilities. A digital asset with no apparent use cases is very less likely to be valuable in the upcoming future. In comparison, a token built upholding innovation and new incorporation scenarios are much more likely to have a better valuation. 

4. Go Through Crypto News and Events Regularly

Worldwide crypto news and events are quickly reflected across their valuations. As explained above, crypto markets are volatile, and traders should keep regular tabs on the latest events. 

5. Place Stop-Losses

Stop-losses are universally recommended for both experienced and newcomer crypto traders. Setting sell orders at a certain price point helps traders reduce losses in the wildly swinging crypto markets. 

Crypto Recommendations for a Balanced Portfolio

There are over 18,000 cryptocurrencies in existence as of today. Research on potential investment options usually begins with a shortlisting of promising assets. Though relatively new, the crypto markets today have their owning shing stars. Examples include:

a) Bitcoin

The world’s first cryptocurrency is also the largest in terms of market share(>40%)and valuations. The currency is also accepted as legal tender across multiple nations and has already surpassed PayPal in regular transactions, trailing only behind Mastercard and Visa.

b) Ether 

Ether is the prevalent cryptocurrency in Ethereum- the world’s largest blockchain network. Apart from countless use scenarios in blockchain-powered smart contracts and dApps, ETH is also making the much-rumored transition from PoW to PoS consensus mechanism which will raise its performance multiple times.

c) Cardano

Launched in 2017 by one of the co-founders of Ethereum, Cardano is similar to the former blockchain network. It stands out with its large resource of academic research materials which its creators believe will help innovators and visionaries bring positive change in the future. The ADA token named after French mathematician Ada Lovelace has exceeded a market cap of $71 billion.

Wrapping Up

A balanced crypto portfolio usually contains a higher mix of low-risk assets and a few risky cryptos. While allocating all resources to a single asset is never an option, over-diversification is also not wise.

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