How to Create a Perfectly Balanced Crypto Portfolio
To count on really decent returns and maximize your odds in the crypto investment game, you should seriously consider creating a well-balanced crypto portfolio. Basically, it’s not that different from balancing a portfolio of traditional assets to mitigate risks and get maximum profit.
This approach is based on diversification and investing in a set of different cryptocurrencies. The number of currencies depends on your personal strategy, and you should always keep in mind that staying flexible is the key — if your strategy doesn’t work anymore, adjust your portfolio by adding some new coins and removing the old ones.
Many experts agree that it’s more convenient to manage your portfolio with special trackers and portfolio management tools that were built to facilitate trading. But let’s take it step by step, shall we?
What is a portfolio of cryptocurrencies?
A crypto portfolio is a set of different cryptocurrencies held by an investor. It usually includes multiple crypto assets such as major cryptocurrencies, some potentially profitable altcoins, and other financial products like NFTs. The general idea is that a portfolio demonstrates your current preferences, is meant to bring a stable profit, and stays subject to change if needed.
As you start building a portfolio, it’s crucial to track it so that you are always on top of your game. There are different tools and methods for portfolio tracking, but often traders use just two of them: spreadsheets and trackers.
As for the first option, you can use Excel or Google spreadsheets to manually record all the purchases and sellings, prices and dates, and indicate other changes in your portfolio. It is a nice option to begin with, but it might be pretty tiring and inconsistent. To optimize this process, experienced investors use various trackers that help automate portfolio management and make all the updates more illustrative. Trackers are especially useful when you rebalance your portfolio quite often, and you need to calculate your profits and losses.
Diversification and asset allocation
Many investors are misled by the fact that, among other things, investment strategy includes two interlinked concepts: diversification and asset allocation. So, what’s the difference between them?
Diversification means that you invest in different assets and sometimes even in different classes of assets. Meanwhile, asset allocation shows your strategy in terms of setting a certain percentage in your portfolio for certain assets.
Potentially, diversification can result in loss of profits when the price of an asset increases, but you don’t benefit much as this asset is just a small part of your portfolio. However, the benefits of diversification usually outweigh concerns since this method reduces risks and brings more stability and predictability.
We believe that you should choose a portfolio strategy individually depending on the time you are ready to dedicate to trading, the risk you are willing to take, and the amount you want to invest. Diversified portfolios usually bring results that are closer to general market fluctuations, and you shouldn’t be hoping for the maximum possible profit if you choose this strategy. On the other hand, a concentrated portfolio with a small set of assets can potentially lead to much bigger returns if the coins were chosen properly.
So how can you choose the best-performing tokens for your portfolio? And what types of cryptocurrencies exist in the current market?
Types of cryptocurrencies
There are several types of assets you might want to invest in.
- Coins for payments. In its first application, blockchain technology was used to create Bitcoin as a new kind of currency people can use for peer-to-peer transactions and payments. Such kinds of coins like Bitcoin, Litecoin, Ripple are currencies of the so-called first generation, and the ultimate goal of their creation was to facilitate payments between people.
- Stablecoins. Essentially, stablecoins are cryptocurrencies, the price of which is pegged to some external underlying asset, such as fiat currency like USD or gold, for example. These cryptocurrencies are designed to lower volatility and bring more stability to the market. Adding stablecoins to your portfolio won’t bring big returns, but it can help protect you from big losses during market recession.
- Utility tokens. Just like the name implies, these tokens have some level of utility and can be used within certain ecosystems. For instance, you might use them to pay for a service on a particular platform or to cover transaction fees on crypto exchanges. Also, startups issue utility tokens to attract investments and fund the development when they exchange them for some liquid currency.
- Security tokens. Security tokens are crypto assets that represent ownership shares in a blockchain project. These tokens digitally validate ownership rights and can represent equity in a company, voting rights, and corporate bonds. Unlike utility tokens, and due to the fact that they are tied to ownership rights, security tokens are way more regulated in the jurisdictions they are issued.
- Governance tokens. Governance tokens are designed to ensure your voting rights on blockchains and, in some cases, bring revenue from the platform. They are most often applied in various DeFi projects and DAOs, and their real value is determined by the overall success of the project they are issued for.
Next, let’s move to portfolio trackers — the applications that help you trace the changes in prices of the assets in your portfolio. They allow you to keep an eye on your investments and watch your progress.
Here’s a short list of the most popular and efficient trackers that many traders rely on:
- CoinMarketCap is one of the most popular informational resources on crypto with its own portfolio tracker. You can use it on desktop and mobile devices and add cryptocurrencies you buy, the exact prices, and amounts. It helps you monitor portfolio changes and get an idea about your progress.
- FTX (former Blockfolio) is another one of the world’s most popular cryptocurrency portfolio trackers. It allows you to view profit and loss for your portfolio held on other exchanges and track prices for over 10,000 cryptocurrencies at once.
- CoinGecko is another commonly used data aggregator that includes a cryptocurrency portfolio tracker and provides you with real-time data on prices of more than 1,000 currencies. It has desktop and mobile versions, as well as useful price alerts and widgets.
- Delta is a pretty universal application because it allows you to track not only cryptocurrencies but also other assets such as fiat currencies, stocks, bonds, futures, and ETFs.
If you’d like to learn more about useful crypto tools, check out one of our previous articles: Top 7 Crypto Trading Tools to Use in 2022
How to create a well-balanced portfolio
Now that you know what kind of tokens you can add to your portfolio and where to track your progress, let’s deal with the most interesting question — how you can diversify your portfolio to get maximum profit. The thing is, investment strategies may vary and depend on long-term objectives, but in general, there are several recommendations you need to take into account:
- Rebalance your portfolio according to the market situation, changing the allocation in favor of one or another cryptocurrency.
- Do your due diligence. It’s important to keep track of the expert opinions on the market, but since you’re risking your own money, it’s crucial to think on your own.
- Limit your risks by investing only the amount of money that you can easily lose. A potential loss you can experience should not lead to changing your life conditions.
- Keep balance and divide your portfolio between low-risk, medium-risk, and high-risk investments. There should be some mix of assets that ensures the balance between decent profits and acceptable volatility.
- Add some stablecoins to your portfolio to ensure flexibility and enable access to various DeFi platforms.
Of course, we cannot guarantee you that you’ll become a millionaire overnight, but following this simple advice and common sense will save you a lot of headaches down the line.
Yet, there is a much simpler way to diversify your portfolio with minimum effort — DeHive crypto indexes. Let us tell you a bit more about them.
Diversify your portfolio with DeHive crypto indexes
DeHive crypto indexes are yield-generating baskets of crypto assets that help you diversify your portfolio, mitigate risks, and maximize profit. Every index is carefully composed by our experts to include the best-performing tokens and represent a particular segment of the market.
DeHive indexes currently operate on several chains, including Ethereum, Polygon, BSC, Gnosis, etc. As you join a crypto index, you can stake it on the DeHive platform and earn a yield on the underlying assets, thus boosting your profit.
But DeHive doesn’t only focus on your profit — we take care of your security as well. It is important to say that we don’t have any access to users’ funds since the platform is fully operated by a smart contract. This way we enable high security and help you protect your data and funds.
So what are you waiting for? It’s time to get maximum profit with minimum effort! Start today and boost your trading game with highly secure DeHive crypto indexes!
The fact that the crypto market is growing rapidly and still has relatively small capitalization tells about the high investment potential. Nevertheless, individual investors should always take care of their portfolio diversification by holding multiple coins and keeping in mind all the risks.
And what investment strategy do you use to build your crypto portfolio? Let us know in the comments!