How to Build your Crypto Portfolio
Over the years, investing in crypto has become easier than ever. You can sign up for numerous services, pass their KYC (Know Your Customer), and buy Bitcoin or many other cryptocurrencies using a debit or credit card in only a few minutes. Despite that, building a crypto portfolio is a challenging task, as there are hundreds of cryptocurrencies available, each with its own vision, goal, governance and much more.
Building your Crypto Portfolio
A crypto portfolio is a collection of digital assets, cryptocurrencies, that investors purchase to earn profits. These portfolios contain cryptocurrencies such as Bitcoin, Ethereum, Tether, Chainlink, Cardano, and many others. Unlike a traditional portfolio, a crypto portfolio is held in a digital blockchain wallet.
Cryptocurrencies are decentralised assets existing on a blockchain and work as a medium of exchange through a computer network. Compared to traditional investments such as stocks, cryptocurrencies are more volatile and require more experience to manage.
As goes for all investing, researching the market is the first step. You should first identify valuable assets with potential for their specific use cases. The more useful an asset is, the more likely it is to be a good investment. Think about its future – its utility and potential global adoption in the future. Other, more current facts should not be discarded, such as current price, market capitalisation, network activity, and the maximum and circulating token supply.
The second step is easier; open an account with an exchange, fund it with fiat and purchase the researched assets.
Diversification Plays a Crucial Role in Building your Portfolio
As with most investments, diversification is key. Diversification refers to the strategy of investing in a variety of assets to mitigate risk. By doing so, potential losses can be minimised while increasing the potential for profit.
By allocating everything to one cryptocurrency, you expose yourself to its volatility fully. While you’ll reap the rewards if it does well while you’re holding on to it, you risk losing your entire investment if it fails. Putting it in terms of percentages, if ETH falls by 30%, you would lose that 30%.
Let’s take a look at a diversified portfolio holding four different cryptocurrencies:
- 25% Ethereum
- 25% Bitcoin
- 25% Ripple
- 25% Polygon
In the same scenario, Ethereum falls by 30%, but the other assets see an uptick. While you lose money on Ethereum, you gain value on the other assets you hold, and they can cover the losses you took while also potentially bringing in profits for your portfolio overall.
This is a basic example. To diversify your portfolio fully, you should consider increasing the number of different cryptocurrencies held and investing in assets with different use cases but also competing projects. As always, allocation and investment should be made based on your risk tolerance.
Few General Tips
No investment portfolio will ever be the same, as people differ in their risk tolerance, investment capabilities, and preferred investment assets. As such, no “guide” can ever be perfect for your own case, but here are a few ground rules to get a well-balanced portfolio:
- Research your risk tolerance, and adjust your portfolio accordingly. If you’re inclined to more risk, you can allocate more of your portfolio to riskier assets, such as low and medium-cap altcoins. Instead, if you want to be on the safer side, you can opt for less volatile cryptocurrencies, such as Bitcoin.
- Include stablecoins, such as Tether, in your portfolio lets you have funds on the blockchain while negating many risks of volatility. As such, you can be quick in buying different coins when they dip or preserve value in a market downturn; you can quickly deploy your capital when the situation requires.
- Be mindful when deciding where to place your money when adding more capital to your portfolio. While buying assets that have outperformed the market may seem like a smart move, it exposes you to risk if the asset retraces and loses value.
- Avoid making investment decisions solely based on other people's opinions. It's crucial to do your own research in this oversaturated market. Always DYOR (Do your own research); there is a lot of information about projects you can invest in, so don’t let that opportunity slip.
- Consider investing small amounts of capital over time rather than going all-in at once. Dollar-cost averaging can help you avoid buying during market highs and losing money.
Avoid making investment decisions solely based on other people's opinions. It's crucial to do your own research in this oversaturated market. Always DYOR (Do your own research); there is a lot of information about projects you can invest in, so don’t let that opportunity slip.
How ICONOMI helps you With Building a Portfolio
ICONOMI envisioned managing your entire crypto portfolio in one application, functioning on top of different exchanges to avoid having multiple different accounts. You can create your own Crypto Strategy, using which you can rebalance all your crypto with a few clicks.
Additionally, ICONOMI exposes you to the benefits of copy trading. Copy trading is a strategy where less experienced users can copy the actions of another trader. It can be executed automatically, and you have complete control over the Strategies and trades you decide to copy and execute. Why don't you learn more about it on our dedicated blog post about copy trading?
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