Contents of this article:
Investments in cryptocurrency are always associated with risks, because market volatility is high, and the rate of the selected asset can collapse in just a few hours. One of the tools to reduce risks and invest wisely is diversification, and an experienced cryptocurrency investor understands its importance.
We will tell you what diversification is and how to compile an investment portfolio properly to manage risks and protect your own funds from draining.
What is diversification and proper asset allocation?
Diversification is the distribution of capital within one asset class. If you are investing in cryptocurrencies, diversifying your investment portfolio means investing in not one but several different coins.
The purpose of diversification is to increase the chances of obtaining high returns and reduce potential risks. In this case, the proverb “Don’t put all your eggs in one basket” works well. You can compensate for losses in the event of a depreciation of one asset by increasing the value of another having collected a balanced investment portfolio. It is worth choosing assets with different capitalization and dynamics to make such compensation possible.
Crypto diversification in practice
Following the classical system of asset allocation, investors divide assets into traditional and alternative ones. Stocks, bonds and cash are considered traditional.
Alternatives include real estate, derivatives, private equity, and cryptocurrencies.
Investments can be strategic and tactical. Strategic is the traditional approach, designed for passive investors to buy relatively stable assets that are guaranteed to make a profit. Tactical investments are suitable for active investors who prefer to invest in promising and promising projects that outperform the market.
If we talk about cryptocurrency assets, it is worth choosing coins with different capitalization for investments. According to the recommendations of experts, assets can be distributed in the following way:
- 70% Bitcoin as the first expensive and popular cryptocurrency that affects the rates of other cryptocurrencies;
- 15% high-cap digital currencies such as Ethereum;
- 10% of a medium-cap currency such as Flow;
- 5% of a low cap currency such as Mina Protocol.
Study the latest charts, expert analytics and follow the news to select suitable assets. Do not forget, once your portfolio is built, you need to regularly analyze and monitor the dynamics of the assets in which you have invested. If necessary, redistribute assets by selling and buying new ones. The choice and purchase of digital currencies should be based on your investment goals and the earning strategy used.
It is important to understand that cryptocurrency assets are the most risky. Investments need to be learned by taking the time to educate you in the field of cryptocurrency.
One of the problems that cryptocurrency investors face is the difficulty in assessing the risk level of a digital asset. You should study the assets you are interested in carefully, use different sources of information and do not rush to buy coins that have just entered the market to invest safely and profitably.
Another problem is the rush to invest. You should not invest all your free money in cryptocurrencies immediately.
It is wiser to invest gradually, monthly investing a small amount, while gaining experience and knowledge. This approach will help you to understand the market better and build a working strategy that matches the dynamics of the crypto market, current trends and sentiments.
Invest in cryptocurrency and your education. You reduce risks and increase your chances of success, approach earning on crypto consciously, master the necessary skills and feel more confident by learning how to make money on crypto and the rules of investing. Get trained and join the Crypto Crew community to know everything about the crypto industry and earn on digital assets with minimal risk!