Whether or not your cryptocurrency portfolio goes up or down in value depends on your strategy for diversification. A diverse portfolio is a work of art. You need to master the technique of diversifying your investments before you put your money at risk. Putting all of your proverbial eggs into one basket exposes you to a high level of risk. Diversification mitigates the risks and ensures that you can reach your goals without putting your future in a perilous position. Use these five tips to diversify your cryptocurrency wallet.
1.Take Advantage of Volatility in the Market
A volatile market isn’t necessarily a bad thing. If you diversify your investments, you could protect yourself against a market swing in the wrong direction. You’ll minimize your exposure to big losses. You need to have a strategy to take advantage of volatility in the cryptocurrency market. New markets opening can be an opportunity to buy Bitcoin in India or Africa as those markets are de-regulated. In addition, you need to be liquid enough to buy more as price drop. This strategy can be counter intuitive to most investors who buy as prices rise. By buying low and selling high, you always end up with profitable investments.
The wider the range of your investments in various coins, the better the chance that you’ll gain returns. Cryptocurrency is still new, so investing in it at all puts you in a higher risk category than investing in stocks, bonds or gold.
2.Plan When to Diversify
Any time is the right time to diversify your collection of cryptocurrency investments. If you’re a small investor with less than $500 in the game, you’re probably better off just sticking to two or three coins. That’s because the trading fees will eat into any gains you achieve from such a small initial investment. You could save money on fees by using certain platforms or services to trade, buy or sell coins.
3.Know the Differences Between Cryptocurrencies
There are a lot of ways to categorize cryptocurrencies. You should know the differences between the types of coins before you start investing or diversifying. When most people think of cryptocurrencies, they think of Bitcoin. It’s the biggest, oldest and highest-volume coin out there. It makes sense to keep Bitcoin in your portfolio. Keep in mind that it’s the most volatile coin. Ethereum started as a Bitcoin alternative.
4.Track Which Coins Offer Stability
Keep some stable cryptocurrencies in your portfolio. Stablecoins are backed by fiat currencies or physical assets. Some options are TrueUSD, Tether and USD Coin. Facebook has tried to develop Libra as another stablecoin. If the market is facing stress, you can transfer your assets into a stable coin.
5.Consider How Hands-on You Want to Be
If you don’t have a lot of knowledge or experience, you might prefer a lower level of diversification. If you’re learning everything you can about cryptocurrencies, diversification of your portfolio could become your new hobby. When you’re new, you might feel more confident at a low to medium risk level with equal allocations across three or four coins. If you’re ready to go all-in, you might invest your funds in a maximalist strategy that focuses on only one coin. This is high-risk investing, but there’s a potential for a high reward. Conservative investors opt for popular coins like Bitcoin. Whales invest most of their funds in a few coins and a little bit of funds across many coins.