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Steps to build a well-balanced crypto portfolio

 

I was a complete cryptocurrency newbie when I got interested in investing in cryptocurrencies. Below are the steps I took to build my crypto currency portfolio:

Before we get into it, a word of caution - it is wise to remember that even as crypto usage becomes more wide spread, it can still be a very volatile investment. You must remember this fact as you create a balanced crypto portfolio, because unlike a traditional investment portfolio a crypto portfolio contains a single asset class that has a higher risk profile overall.

Below we look at some pointers that will give you a jump start as you venture into the fast-paced and ever changing cryptocurrency world.

1. Understand Cryptocurrency Essential Principles

Before considering investing in cryptocurrency, understand what is cryptocurrency, what are the different types and the basics of digital assets and blockchain technology. When entering into the crypto investing, the venture should be approached with a long-term mentality. At the same time, expect to face market volatility, including the possibility of making a 100% loss.

The basics of investing in crypto are pretty similar to other financial assets, but the difference of potential becomes apparent when you discover how much easier crypto makes it to diversify, build, and maintain a thriving portfolio.

2. Research

When creating your crypto portfolio, research in detail. Learn as much as possible about the team behind the coin. Furthermore, make sure you understand the purpose served by the coin. A currency that ultimately has no concrete use may not be valuable in the future, versus a currency that is predicated on innovation or developing new systems or technologies. Keep an eye on the crypto's trade volumes, market caps, and planned network upgrades. These stats will help you determine the amount of coins available for a specific asset, how they’re being traded, and their plans for the future. Always remember that not all crypto coins will stay at the top in ranking for long as shifts are expected. 

3. Diversify

Now that you are aware of the cryptocurrency basics, have done your research, which coin should you invest it? Several investors invest in well-known coins like Bitcoin and Ethereum. 



Generally speaking, a cryptocurrency portfolio with a diverse market cap should have a couple of high market cap coins, medium market cap coins, and low market cap coins. The diversity helps you plan for both short and long term growth without exposing yourself to too much risk. It’s common, for example, to see portfolios split at 50% (high), 30% (medium), and 20% (low) market cap coins, respectively. However, identifying the differences between the coins is a daunting experience, and the professional services of a reputable cryptocurrency broker help a lot.

4. Consider stop losses 

Since the cryptocurrency market can be highly volatile, it may be a good idea to set some guardrails around it, such as  stop loss orders. Stop losses are orders to sell an asset when it falls to a certain price. Setting stop losses on cryptocurrencies may help protect investors from taking too big of a hit to their crypto portfolio’s value, should prices drop.

My next blog will be the five different types of cryptocurrencies. Stay tuned!


What cryptocurrencies have you invested in? Comment below

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