The first rule of an investor is not to put all your eggs in one basket. Creating a cryptocurrency portfolio is the result of its practical application. This is necessary to level the extreme volatility of the cryptocurrency market. A change in the price of an asset by 30-50% per day is a phenomenon that is almost impossible in traditional markets and quite common in the cryptocurrency market.
Such high volatility is a great chance for a trader, but the price of a mistake can seem unbearable. Diversifying risks by investing in different assets increases the resistance of investments to price fluctuations.
If you are serious about becoming a crypto investor, it is better to create a portfolio right away, even if your investments are still small. By investing in several different assets, or periodically converting part of BCH to BTC, you can earn income at the initial stage.
How a portfolio of cryptocurrencies is created
The main principle of the correct distribution of capital is the diversity of assets. Investing everything in even the most stable and reliable coin is very risky. Suffice it to recall the recent algorithmic stablecoin UST and the panic it provoked on the stock exchange. In the cryptocurrency market, you may miss the chance to earn more, but the possibility of losing everything will always be present.
There should be several assets, and the distribution of capital between them is determined by your investment goals, the chosen strategy, and risk tolerance.
Suppose all funds are invested in some promising coin, but it suddenly collapsed by 25%. This is your current loss. If your capital is distributed among several different coins, then the trouble in the form of a collapse of one asset will at least be mitigated, and at the maximum, it will be covered by the stability or growth of other assets.
As a rule, novice investors are advised to allocate most of the portfolio to popular cryptocurrencies with high capitalization and relatively stable growth.
How to choose coins
The number of cryptocurrencies on the market is in the thousands, but their potential value for an investor is not the same. Among the criteria for choosing coins for an investment portfolio, it is worth highlighting the most significant:
- The popularity of the coin.
- Market capitalization.
- Price.
- Volatility.
- Project prospects.
Coins from the TOP-15 rating are considered relatively reliable. They are fairly stable, liquid, and have good growth prospects. Nevertheless, if we limit ourselves only to stable coins like BTC and ETH, we still cannot expect rapid growth of several thousand percent from them. This is the destiny of young ambitious projects, provided that the project “shoots”. However, the risk of losses, in this case, is also huge.
By combining stable and new assets, you simultaneously increase your return base and stabilize your investment. Recently, the coins of projects aimed at the development of the digital economy have become the most promising. Among the projects aimed at developing a new type of economy are Polkadot and Cardano. Polkadot aims to solve the fragmentation of blockchains, Cardano, in the future, can become a worthy competitor to Ethereum in the field of decentralized applications and smart contacts.
The return on investment depends on the value of the assets at the time of acquisition. When buying a coin at the next peak, be prepared for a possible correction and most likely you will have to wait longer for the return on investment to begin.
The cryptocurrency portfolio needs to be changed, taking into account market trends. The cryptocurrency market is very dynamic, some projects fade and disappear, some lose their positions, but new ones quickly come in their place. Converting LINK to BTC or another cryptocurrency pair in time for reinvestment is not an extra move, but a completely reasonable decision
Investment strategy
The strategy is chosen based on financial expectations. You can allocate capital in different ways.
If low-risk investment is the most preferable for you, the asset ratio might look like this:
- 80% – stablecoins and coins from TOP-15
- 15% – liquid altcoins from the TOP-50 that are gaining popularity.
- 5% – inexpensive altcoins of promising projects.
In a riskier investment option, the asset ratio might look something like this:
- 60% – stablecoins and coins from TOP-15.
- 25% – popular promising altcoins.
- 15% – new coins.
In particularly aggressive investment strategies, stable, medium-risk and high-risk assets are present in equal shares.
The easiest way is to form a portfolio on a crypto exchange. You can also store your funds there for a while. First of all, this method of storage is convenient for prompt response to changes in the market situation.
As the amount of savings increases, it makes sense to create an offline wallet and store part of the funds in a more secure place.