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What Are The Benefits of A Diversified Crypto Portfolio?

How To Start Crypto Diversification?

Crypto Portfolio Examples 

Conclusion

Winner Crypto Portfolio: How To Diversify Crypto Portfolio

Crypto portfolio diversification involves investing in different crypto assets to reduce your portfolio’s risk. Diversification is one of the basic principles of long-term investing, which means rather than investing all your money in one asset, you invest in several different assets. 

To diversify your crypto portfolio, you can invest in multiple different crypto assets like different cryptocurrencies, including Bitcoin and altcoins, NFTs, and stablecoins. Diversification is a good strategy, especially for beginner crypto investors. It allows you to spread your risk across different cryptos to help manage volatility, so you aren’t concentrated on one particular crypto asset.

Key Takeaways

  • The cryptocurrency market is known for its volatility. This means that crypto prices can change drastically, either increasing or decreasing daily. While this can help make crypto investors a profit, it can also add to their losses. This is why it is risky to be solely invested in Bitcoin and why you should consider investing in a variety of digital assets in the crypto market.
  • By investing in different crypto assets, you protect your portfolio against significant losses. For example, if you hold a combination of Bitcoin, a variety of altcoins, and stablecoins, and the price of Bitcoin falls 10%, your other crypto assets - altcoins and stablecoins - could still hold their value and perform well, offering you some downside protection. 
  • Owning different crypto projects that vary in size allows you to explore the potential of having crypto investments that could be long-term successes and increase in value over time instead of betting on just one crypto asset.
  • You can diversify your crypto assets by market capitalization, buying payment coins, smart contract cryptocurrencies, cryptos from different industries, and geography. 
  • There are many different diversification strategies for a crypto portfolio. You can adjust your portfolio allocations toward different cryptocurrencies depending on how much risk you are willing to take. 

What Are The Benefits of A Diversified Crypto Portfolio?

By diversifying your crypto portfolio among different digital assets, you reduce your risk by spreading your investments across various crypto categories, so you are not concentrated in one asset.

By buying different crypto coins, you explore different investment opportunities in the crypto market rather than betting on one crypto. There are thousands of cryptocurrencies on the market, with developments and innovations occurring every day in multiple crypto categories. 

To capture this growth, you need to research to find and buy the crypto investment that will increase value over time. This may not be one single investment. It could be multiple crypto investments in different crypto industries. Diversification allows you to buy multiple crypto coins, so you have the opportunity of owning a potential crypto winner in the future.

Check out ATAIX Crypto Portfolio Tracker and keep track of your profits, losses, and portfolio valuation with our easy-to-use platform.  

How To Start Crypto Diversification?

There are many ways you can diversify your crypto portfolio. Crypto investors tend to start with Bitcoin and Ethereum since both cryptocurrencies are the most popular coins on the market, but you can also diversify your crypto assets among other areas of the crypto market:

  • You can invoice payment coins like Bitcoin (BTC) or Litecoin (LTC)
  • Investors can buy Smart contract assets including Ethereum (ETH), Polygon (MATIC), Cardano (ADA), Solana (SOL)
  • Having crypto assets from different industries including decentralized finance, peer-to-peer applications and cryptocurrency exchanges
  • Another diversification method is to invest in different cryptocurrencies with varying market capitalizations. This means not only buying the most popular cryptocurrencies but also emerging cryptos.
  • Investing in crypto-assets based on geography can be another way to diversify, which can help protect against regulatory concerns. 

Crypto Portfolio Examples 

There are several methods to diversify your crypto portfolio depending on your risk tolerance. If you want to take more risk in your investments, you can allocate more money toward volatile crypto coins. If you want to take less risk, you can reduce your allocation toward volatile cryptocurrencies.

Since Bitcoin (BTC) and Ethereum (ETH) are the most traded and market-tested cryptocurrencies, many crypto investors hold both Bitcoin and Ethereum as starting crypto investments and diversify among crypto coins with different purposes. Here are a couple of examples.

Example 1

This strategy focuses on diversifying among the cryptocurrencies with the largest market capitalization.

  • Bitcoin (BTC) - 40%
  • Ethereum (ETH) - 30%
  • Tether (USDT) - 10%
  • BNB (BNB) - 20%


Example 2

This strategy focuses on diversifying among smart contract crypto investments.

  • Bitcoin (BTC) - 40%
  • Ethereum (ETH) - 30%
  • Solana (SOL) - 10%
  • Cardano (ADA) - 10%
  • USD Coin (USDC) - 10%


Example 3

This strategy focuses on diversifying among emerging crypto coins.

  • Bitcoin (BTC) - 30%
  • Ethereum (ETH) - 30%
  • Terra (LUNA) - 10% 
  • Avalanche (AVAX) - 10%
  • Polygon (MATIC) - 10%
  • Tether (USDT) - 10%

Conclusion

Since there is a lot of volatility in the cryptocurrency market, diversifying your crypto portfolio is necessary to reduce your risk. While Bitcoin is the most popular and widely traded cryptocurrency on the market, you can’t put all your eggs in one basket when it comes to investing. 

Diversification is a crypto investing strategy used among many investors to put their money in different crypto coins to minimize their losses and optimize their investment performance. Depending on your risk tolerance, you can implement many diversification strategies. You should always do your research before investing in any cryptocurrency to make sure you can manage the risk associated with each crypto investment.

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