Cryptocurrency is one of the most profitable investments in today’s world. It has outsmarted other investments even though it is currently in a downward trend. Other cryptocurrencies are even below their all-time high by 99% but with their historic rise in value, they can be a worthwhile but very risky investment class.
If you own Bitcoin or weighs your portfolio toward other cryptocurrencies, you must diversify it. Undiversified portfolios are risky, and for this, crypto investors have the chance of diversifying their investments within the blockchain and crypto sector to enhance their exposure to emerging asset groups.
Definition of Cryptocurrency Portfolio Diversification
Crypto portfolio diversification is investing your assets in different crypto sectors to avoid risks that come with investing in one project that might end up with poor performance. Establishing a diversifying approach helps you meet limitless results even when some of your crypto investing portfolio performs below par.
Expert investors understand the risk of putting all their money into one investment. As an upcoming stockholder, you should invest in more than two cryptocurrencies, but if you want to create a successful portfolio, two coins won’t be enough.
Ways to Diversify Your Cryptocurrency Investing Portfolio
You can diversify your cryptocurrency investing portfolio across different sectors, including:
- Industry focus
Diversify By Coins
Diversifying your crypto investing portfolio is a common and basic diversification strategy. The idea here is to invest in different types of well performing crypto as they differ based on their operating technologies and foundations. This helps you choose the right option that meets your investment goals.
You can choose to invest in different types of crypto coins. But when choosing this approach, you must be familiar with certain features like future potential, crypto prices, and past trends. Here are different types of crypto to consider:
- Payment tokens: Bitcoin and Ethereum are the most renowned payment tokens cryptocurrencies. You can use them to complete transactions where they accept crypto.
- Utility tokens have specific use cases in the crypto and blockchain ecosystem. Filecoin is one of the utility tokens that enhances decentralized data storage.
- Basic attention tokens: used to pay users for their attention, like in digital marketing.
- Non-fungible tokens: investors can be digital tokens owners of specific assets. The tokens are non-fungible as you can’t interchange the underlying assets.
- Governance tokens: these tokens allow investors to take part in blockchain governance.
- Security tokens: specific assets like commercial properties backs the tokens the. The tokens are fungible as they convey and represent ownership.
Diversify by Timing
Diversification has existed for years and is dependable and proven when utilized well. In this strategy, you need to get your cryptocurrency resources at the right time by timing the market.
While getting rid of market risk is impossible when investing, you can increase your portfolio value by choosing where and when to invest. Using time to diversify your crypto investing portfolio is an interval-based investment strategy. You have to set a certain amount of money to invest at a specific time of your choice.
The best time to invest in cryptocurrencies using time diversification is when the prices are lower, and when the prices get higher, it’s an excellent time to gain profit by selling your crypto.
Diversify By Industry
When looking for the right coin to invest in, choose the one that can solve issues in different industries. With this, you can mitigate your investment’s adverse effects on unfriendly crypto events and policies.
Conduct in-depth research on the right coin and industry and invest in a growing and stable sector. Remember to consider profitability and the world’s competitive businesses like finance and medicine. Do not invest in a project you aren’t conversant with, as you will be risking your funds.
Diversify By Geography
Investing in global crypto projects is another strategy that helps expand your crypto investing portfolio. Depending on your risk tolerance and preferences, you can finance blockchain projects in the United States, Asia, and Europe.
Ensure you don’t use your funds on crypto projects in the same country_ conduct in-depth investigation on the performance of different crypto projects worldwide. This helps you balance your portfolio and avoid governing issues in unpredictable market circumstances.
Diversify By Asset Group
There are various asset class options for blockchain and crypto stakeholders to diversify their crypto investing portfolio. Some of these major asset classes include:
- Bonds: investors can get blockchain bonds online or buy cryptocurrency bonds. The Singapore Exchange, the World Bank, and the European Investment Bank give crypto and blockchain-based bonds.
- Stocks: you can secure stocks from businesses focusing on crypto or companies with huge crypto assets. Most crypto hardware and mining businesses trade in public, while others, like Microstrategy, have significant crypto assets.
- Real Estate: you can buy crypto real estate tokens to get exposure to the largest asset class in the world.
Diversify By Investment Type
You can diversify your crypto investing portfolio in different types of accounts and investment vehicles if your portfolio security is a prominent risk area. You can choose to invest in:
- Digital wallets: you can use various digital wallets to help you gain ownership of digital coins like real estate tokens and NFTs.
- Cryptocurrency IRA: you can invest in digital assets by forming an individual retirement account. Cryptocurrency IRAs channels help investors with the burdens of administration associated with self-directed personal retirement account financing.
- Taxable brokerage account: investors can have cryptocurrency security investments in their taxable brokerage accounts. They can own digital assets in brokerage accounts like Robinhood as it supports cryptocurrencies.
Diversification is investors’ best risk management strategy in traditional resources and cryptocurrency. While it does not protect you from market correction or volatility, it reduces your chances of losing money if one of your investments performs below limits.
Depending on your desired approach, expanding your cryptocurrency investing portfolio has some taxing costs. Go through your crypto investing portfolio and see whether you need to diversify it. If it does, make well-informed decisions to choose the right diversification strategy that works for you.