Risk diversification

Risk diversification

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Risk diversification is one of the key topics for an investor and trader working with crypto assets . The cryptocurrency market is considered the most unstable, its assets have the highest volatility, their rate often changes, sometimes skyrocketing, sometimes falling. To save money, an investor must balance his portfolio by filling it with different assets. We will explain in simple terms what risk diversification is and how it works.

What is risk diversification?

In the crypto industry risk diversification is an economic principle that is to protect capital. The concept of risk diversification means the distribution of funds between several assets that differ in a number of parameters that are not related to each other or are minimally related.

The risk is the probability of a decrease in the value of assets, the chances that when selling them, the investor will earn less than he invested when buying. Different methods of risk diversification consist in the competent distribution of funds, balancing the portfolio to compensate for potential losses with expected profit.

Crypto market investment options

In the cryptocurrency industry risk diversification involves several types of investments. Let’s highlight two main ones. The first is investments in the cryptocurrencies themselves , the purchase and formation of a portfolio of coins with different capitalizations. In this case, for diversification, it is necessary to draw up a system of risk levels for each specific asset. The risk can be high, medium or low, depending on the liquidity of the project and a number of other factors. The task of a competent investor is to distribute funds between cryptocurrencies so that more than half, about 60%, falls on low-risk assets, about 25% can be invested in coins with medium risks, and 15% can be left on high-risk cryptocurrencies . This tactic allows you to make a profit both in the short and long term.

The second investment option is investing in ICO projects. An investor should study the market offers and choose the most promising projects in his opinion, distribute funds between them equally.

Effective risk diversification is all about flexibility and balance. Therefore, experienced investors use both methods, investing in crypto (about 70% of the capital) and ICO projects (the remaining 30%). This approach significantly reduces the risk of losing funds.

Investments in different types of cryptoassets

In simple terms, risk diversification is the purchase of different assets. Cryptocurrency should not be perceived as one specific asset, because it is a group that has features, advantages and disadvantages.

Bitcoin is a crypto from the so-called ” Store” category. Value » (value saving). By itself, it has no value, but people invest in it, as in precious metals, in order to save money. Bitcoin is the top coin that occupies the main place in the portfolios of most investors.

Ethereum , Solana and similar coins are called infrastructure. An ecosystem is created around them. To use the blockchain Ethereum , you need to spend part of the ETH. More and more people use the platforms and additional products of these projects, investing money in them and believing in the price increase.

There are also tokens cryptocurrency projects, such as BNB or UNI. These are company tokens created with the help of blockchain . They can be issued on the blockchain of infrastructure coins, or they can become such themselves by creating their own blockchain .

Understanding different crypto projects, the investor can easily balance the portfolio, making it diverse and promising. Learn more about what is a risk diversification method , learn how to properly build an investment portfolio and invest wisely, you will learn in Crypto Crew . Our community is actively developing and helping newcomers to the world of cryptocurrency become experienced investors and traders. Join the community and stay up to date with all the news of the sphere. To master investor skills even faster, sign up for our training course!