In this article
- What is a Balanced Crypto Portfolio?
- Best Strategies to Balance and Diversify Crypto Portfolios
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Gone are the days of the crypto market being a niche sector attracting select individuals. In 2023, the crypto landscape matured into a global industry with numerous sectors and varied offerings. The complexity and variance of the crypto market rivals the conventional trading industries like fiat, stocks and bonds.
Therefore, businesses and individuals who wish to adopt a cryptocurrency portfolio must employ the best portfolio management practices available on the market. As with everything else, having an outstanding balance is crucial in crypto asset management.
This article will explore the strategies and methods that can be adopted to keep a well-balanced portfolio of digital assets.
Maintaining a healthy portfolio balance is crucial in the crypto market, as it increases growth potential and minimises volatility risks.
While each crypto portfolio requires a specific approach, there are general investment practices that apply to most scenarios.
Investing in market-leading coins and seeking out crypto platforms with smart contract functionality is advisable. Diversification by different sectors is another excellent tactic.
Investors must also maintain an excellent asset balance, acquiring a mix of well-established and startup crypto projects to simultaneously enjoy stability and growth upside.
What is a Balanced Crypto Portfolio?
To nobody's surprise, the world of crypto has borrowed numerous strategies, tactics, and portfolio operating principles from traditional markets like stocks. Thus far, these practices have proven highly effective in the crypto market, letting investors manage their portfolios more precisely and increase their chances of short and long-term profits.
However, it is essential to note that portfolio management practices can't be simply translated into the crypto field. The conventional management practices must be adjusted in the context of a more volatile and technologically advanced crypto economy. One such method is having a balanced crypto portfolio, which is a foundation for having a diversified portfolio with a higher risk tolerance and increased potential for reliable returns on investment.
Like a traditional investment portfolio, a crypto asset pool requires careful balancing. Moreover, an outstanding balance is even more crucial in the crypto field, as the market still struggles with volatility and price variance regularly. Keeping a proper balance, however, is not an easy mission to complete, as it requires comprehensive market knowledge, critical decision-making and practical experience.
It is also important to remember that each crypto asset class has its inherent risks and factors to consider. Thus, every crypto portfolio requires unique strategies and tactics to grow and yield material profits.
Industry-leading cryptos like Bitcoin and Ethereum are much less likely to suffer from market downturns, regulatory mandates and other worst-case scenarios.
Best Strategies to Balance and Diversify Crypto Portfolios
Although each crypto portfolio requires a distinct management style and specific strategies, certain general practices can be applied in most portfolio management scenarios. These practices ensure proper asset allocation and enhanced risk mitigation across the board. It is highly recommended to adopt the following strategies and tactics to ensure a crypto portfolio's long-term success and stability.
Go With Market Leaders
One of the most straightforward, highly proven, and effective strategies is to invest in the market leaders simply. After all, the leading crypto platforms have the highest capitalisation rates because they have managed to globalise their crypto offerings and accumulate massive valuations. Statistically, it is much less likely that the market will witness a downturn of market-leading cryptocurrencies. Thus, purchasing the biggest cryptos can stabilise a crypto portfolio, offsetting riskier investments and market volatility concerns.
However, investors should still carefully examine their crypto investment choices, as there is still a margin for error. For example, Ether's valuation dropped significantly after the NFT market debacle. In 2023, market leader cryptos will also face hawkish regulations from several governments, which is another factor to monitor. However, more prominent cryptocurrencies still tend to endure steep market conditions better than their smaller counterparts, making them a great investment choice overall.
Excluding stablecoins from the equation is crucial, as they are prominently featured in the top ten but provide little-to-no opportunities for investment returns. That is because stablecoins are tied with fiat currencies like the US dollar, which severely limits the investment gain opportunities.
Prioritise Cryptos with Different Utilities
As discussed above, the crypto world has come a long way from a simple Bitcoin offering. In 2023, the crypto market will feature numerous sectors with varying functionalities and goals. Thus, selecting one asset class and putting all of your investment resources in this single niche is no longer profitable or secure.
This is excellent news for aspiring investors who can diversify their crypto portfolios by investing in different sectors. With this approach, investors can succeed even if some invested industries experience market volatility, regulatory onslaught or other stressful scenarios.
Let's recount some of the most popular and established crypto sectors:
- Payment Coins, like Bitcoin and altcoins, offer swift, convenient and low-cost transaction opportunities across the globe.
Decentralised Finance (DeFi) platforms, like Ethereum, provide a fully-fledged alternative to conventional financial institutions and their rendered services.
Privacy Coins, like Monero, offer flawless security options with complete anonymity and decentralisation.
Metaverse Platforms are the digital worlds constructed to welcome virtual guests, letting them explore and interact with other players freely.
There are numerous other cryptocurrency sectors on the market, with varying levels of risk and growth potential. Investors must carefully decide which sector is worth investing in and which coins represent the best options within a specific industry. While Bitcoin might be a no-brainer choice in the payment coin market, the other sectors might not present such obvious investment choices.
Thus, conducting your own research and identifying the most reliable cryptos within a given niche is essential. Investing in at least two coins from a given sector is highly recommended, letting investors safeguard their portfolio from various company-related risks, including fraud, insolvency, etc.
Invest in Cryptos That Support Smart Contracts
Aside from revolutionising the finance industry, blockchain technology is also famous for decentralised applications (dApps) and their limitless potential. Blockchain allows developers to construct faster applications and enjoy complete decentralisation without intrusive central authorities.
Decentralised apps are highly demanded on the blockchain market, and many experts believe that dApps have only cracked the surface of their full potential. Therefore, crypto platforms that support dApp development are desirable investment options with considerable upside. For example, Ethereum is one of the first crypto platforms to support a robust ecosystem for developing decentralised apps. When the dApp market increases in value, the Ether token will follow accordingly.
The development of dApps is possible through smart contract functionalities supported by numerous crypto platforms across the market. Some of the most popular choices are Ethereum, Cardano, and Solana. While the blockchain market has experienced numerous challenges and roadblocks, decentralised apps are by far blockchain's most valuable and practical products. Therefore, investing in their platforms is an excellent choice for investors who believe that blockchain will continue growing.
Classify Your Assets into Bitcoin, Ethereum and the Rest
This strategy is one of the most established and popularised tactics in the crypto investment market. Since Bitcoin and Ethereum are the pillars of crypto stability worldwide, they are much less likely to falter. Both currencies are supported by a robust blockchain ecosystem and enhanced security protocols. More importantly, both cryptocurrencies have the general public's support, making them more resilient to market volatility and potential downturns.
As a rule of thumb, many investors structure their portfolios in the following manner – 33% for Bitcoin, 33% for Ethereum and 33% for the remainder of investments. This is a great option for individuals and businesses seeking low-risk investments, allowing crypto portfolios to house a potent mix of long-term security and growth upside. Investors can comfortably acquire lesser-known coins with high growth potential but keep their portfolios on the safer side of market volatility.
However, it is essential to note that even Bitcoin and Ethereum are susceptible to price variation and downturns, as the market has witnessed in recent years. So, investors must realise that there are no legitimate low-risk choices in the crypto market. Thus, it is advisable to have other investment portfolios aside from the crypto asset pool, as this practice will mesh well with crypto investments' high-risk and high-reward nature.
Consider Cryptos with A High Growth Potential
As discussed above, it is best to supply your crypto portfolio with well-established coins prominently featured in the top 20 of market capitalisation. However, the remaining one-third of your portfolio is vacant for experimentation and taking long-shot bets. After all, the crypto landscape is still only a decade long. Thus, there is a chance that the biggest players in the crypto market might not have been founded yet.
It is crucial to remember that most industries found their biggest players and market leaders decades after the initial exposure. Industry giants like Apple, Google, and Facebook used to be thrifty startups in the shadow of much more successful alternatives at some point. This could be the case for numerous up-and-coming crypto startups. Thus, investors must regularly monitor emerging crypto coins with lesser exposure since they could become the next big thing and yield astronomical returns on investment.
The continuous search for emerging industry giants might be the most exciting part of operating a crypto portfolio. However, this is an arduous and demanding task, requiring extensive research and assessment. Crypto coins with high upside must be evaluated in terms of utility offerings, the competency of the creators, tokenomics, security and many other crucial variables.
While many startup coins might not pan out, investors should not be demotivated to continue their search. After all, a single successful startup investment could drastically overshadow twenty unsuccessful ones in profitability. Therefore, it is crucial to keep looking and investing within reasonable boundaries.
Adjust Your Portfolio Structure in Line With Market Changes
Finally, investors must also remain vigilant throughout to maintain diversified crypto portfolios. It is no secret that the crypto market can present tectonic shifts every couple of years or even months. Industry leaders might lose their market share and become volatile, while startup coins might accumulate massive market caps and become worthwhile investments. With such unpredictable economic shifts, staying ahead of the curve and re-evaluating crypto investment choices frequently is crucial.
For example, investors might need to regularly monitor their asset allocation, as the asset risk levels are susceptible to frequent changes. Additionally, some coins might decline in value, and investors must swiftly adjust their strategy, disposing of the losing asset as swiftly as possible.
However, the process of crypto monitoring might become too laborious in the case of larger crypto portfolios. In this case, investors can acquire a portfolio tracker software, which will help them simplify the monitoring and evaluation process. With real-time pricing reports and insights from portfolio tracker solutions, investors can adjust their crypto portfolio manually without missing a beat.
Adopting a crypto portfolio is, without a doubt, a worthwhile endeavour, as the crypto market is still tremendously young and presents exciting growth opportunities for investors. With recent developments in the blockchain landscape, the future of crypto is brighter than ever, as the market is experiencing a much-needed maturation process.
However, crypto investments remain to be risky and volatile, with considerable price variation. Thus, investors must employ the best investment strategies available to ensure high returns despite the unpredictable market conditions.
Are Crypto Investment Portfolios Worth It?
Adopting a crypto portfolio can be extremely profitable and produce unprecedented returns compared to conventional investment portfolios. The crypto market has witnessed several instances of exponential growth in small periods of time, like the case with Ethereum. However, the high rewards are mixed with equally high risks, which must be offset by diligent portfolio management practices.
What are the Benefits of a Well-Balanced Portfolio?
Well-balanced portfolios allow investors to enjoy the best of both worlds – ensuring the long-term stability of their portfolios while still investing in riskier assets with high growth potential. With a great balance, portfolios can yield reliable returns, offset market losses and accommodate risky investments without significant loss possibilities.
What are The Best Practices for Balancing a Crypto Portfolio?
Best practices in this case include investing in market leaders, diversifying portfolios with coins from multiple sectors, and investing in coins with smart contract utilities. Additionally, investors should maintain a great asset balance with a mix of well-established and lesser-known coins. Finally, investors should also seek out startup crypto projects with tremendous growth potential to increase their chances of success.