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Learn How to Build a Well-balanced Crypto Portfolio with these 6 Tips

How to Build a Well-balanced Crypto Portfolio

Cryptocurrencies are a popular asset class among investors around the world, providing a great alternative to real estate, bonds and other traditional assets. Although volatile, digital currencies offer unique returns potential and great opportunities for building a well-structured portfolio, and they are also accessible to everyone, as users can buy bitcoin with debit card or through P2P trading or bank deposit.

If you’re considering setting off on your crypto trading journey, you’ll be delighted to learn that building a crypto portfolio requires no prior knowledge. However, you should do your homework on crypto trading before investing your hard-earned cash, as trading can be risky and often leads to losses, especially in the beginning, when you are inexperienced. That said, you can have a positive experience with crypto trading if you focus on diversification. To this end, we created this guide to help you ensure your returns are contrasted. Read on!    

Establish your investment goals

Before buying or selling an asset, consider what you want to achieve in your crypto investing journey. Ask yourself how you define success in terms of your investments, as this will help you avoid common mistakes. You want to be as clear as possible when establishing a goal: for example, instead of just saying that you wish to make money, you can use a more specific statement, like” I want to double my investment within the next five months”.  

But it’s also important to set realistic goals – otherwise, you’ll only set yourself up for disappointment. Goal setting can also help you prevent impulsive decision-making because you have a plan you can follow at all times during your trading journey, ultimately increasing your chances of success.

Assess your risk tolerance

All crypto traders have a unique journey, as they want to achieve different things. Not only that, but their risk tolerance also differs. While some find volatility appealing and see it as a way to make substantial profits, others would rather opt for more stable assets.

So, before you start building your portfolio, you should evaluate your risk tolerance, as this will help you understand whether you prefer high or low-risk investments. Once you get a clear idea on this, you can start evaluating different coins in the market and decide which of them are a more suitable investment for you.

Include different asset types

Diversification is a golden rule for crypto investing because it allows you to minimize risks and increase the potential for ROI. Your portfolio isn’t balanced if it includes only high-risk or low-risk investments. Instead, it should consist of a mix of assets, allowing you to offset possible losses with gains. Ultimately, this will help you ensure your portfolio remains stable regardless of what happens in the market.

You can diversify across different asset types by putting 70% of your funds into established coins like Ethereum and Bitcoin and 30% into speculative altcoins. However, you must remember that crypto is volatile, so even if you diversify, you should always practice caution when investing.

Choose coins with various use cases

Trading experts recommend investing in cryptos with different use cases. For instance, you can opt for privacy coins, DeFi coins, coins used for international payments, gaming coins, etc.

In order to do so, you want to take the time to research different coins. This way, you can learn their main use cases and then pick a coin from each category. This is a great way to create a well-structured portfolio.

Embrace a long-term approach

Often, beginner traders plan short-term, but this isn’t the right approach. In the crypto space, what happens in the long run is much more important. You may think of yourself as an expert after making profits, but the truth is that there are no limits to how much you can learn during your journey within the crypto space.

It’s essential to remember that getting rich quickly is simply not possible, and the best approach is to aim to create additional wealth over time by investing in high-quality assets. There will be many ups and downs along the way, and patience is key in weathering the market’s fluctuations.

Rebalance your portfolio periodically

Given the volatility of the crypto market, rebalancing your portfolio is critical, as this will allow you to stay diversified and prevent big losses. Simply put, rebalancing means readjusting the weightings of the assets in your portfolio.

To succeed with crypto trading, you should sell those assets whose value has dramatically increased – otherwise, if the asset plummets, you will face losses. Prices can change quickly, so always being prepared to rebalance your portfolio is essential. Although you may find it difficult to sell specific assets, this is a key aspect of trading, and you must do it if you want to make profits.

What types of assets should you include in your investment portfolio?

While Bitcoin is the largest crypto by market cap, a well-balanced portfolio should include multiple types of coins, such as:

  • Payment currencies. Bitcoin belongs to this category, representing digital cash on a decentralized network. Through their features, these currencies are designed to exceed traditional money.
  • Utility tokens. As the name suggests, these tokens were developed for specific purposes. Essentially, they enable users to interact with apps and features that exist on a particular platform. Sometimes, they can be used as a payment method for services and products, but they are also a means to unlock the utility of a network.
  • Stablecoins. Stablecoins include USD Coin and Tether, and their purpose is to provide relative price stability. Unlike other types of cryptocurrencies that see wild price fluctuations, stablecoins are built to remain stable over time.
  • Infrastructure tokens. Ethereum and Cardano are infrastructure tokens, representing the backbone of the blockchain. Without them, the digital ledger could not run smoothly.

The bottom line

Managing your crypto portfolio is critical to achieving success, and if you do it right, you can maximize your profits. If you need help with crypto trading, don’t hesitate to seek expert advice, and keep educating yourself on the industry so you can make the best investment decisions. With proper portfolio management, you will set yourself up for success in the cryptocurrency space.

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