Crypto Currency

5 ways to diversify your crypto portfolio and limit risks

If you have issues with maintaining a stable portfolio, it’s time to learn how to diversify it. This strategy is among the best ones because it minimizes the risk of losing your crypto assets, and it also makes it easier for you to earn money. Various ways of diversifying cryptocurrencies will allow you to get your financial needs met, but you need to have an initial plan. It’s best to decide if you want to invest short-term or long-term. However, holding crypto for longer is the best choice if you plan on being a balanced investor.  

Diversification is done by spreading your investments across multiple crypto assets to ensure you’re less prone to losing everything at once, which would be the case if you only invested in Bitcoin or Ethereum. Even if these are the best cryptocurrencies at the moment, diversifying means also considering altcoins or stablecoins since they can help with minimizing volatility. You could check the Ethereum price on Binance and start investing, but that’s not enough for a stabilized crypto inventory. Luckily for you, there are more than 21.000 cryptocurrencies at the moment, so you have plenty of options to choose from and start diversifying your portfolio.

Use cases

Although most cryptocurrencies have a typical application of serving as transactional and digital coins, some have distinct features, which means you’ll use them for different actions. Depending on what you want to do with them, you can use crypto for:

  • Charity. More non-profit organizations started accepting crypto donations as a way to increase the potential for more fundraising opportunities, and it’s also more tax efficient for donors to use crypto;
  • Remittances. If you only want to send money everywhere around the world, using crypto is the easiest and less expensive way to do it. In some countries where people can’t access essential financial services, crypto has become the best choice for making transactions;
  • Store of value. This is the most common reason people invest in crypto because it allows them to hold onto monetary value and fight inflation. Stablecoins are usually used as a store of value because they are quite stable;
  • Starting a business. Small businesses and entrepreneurs have more benefits from using cryptocurrency and decentralized finance because they’re not governed by a central autonomy, which gives business owners more freedom and financial opportunities;

Market capitalization

Diversifying your portfolio by market cap is also essential because it shows you the actual value of a cryptocurrency. This metric is determined by the current price of a coin multiplied by the circulating supply, which is the total amount of crypto asset units in existence. There are three types of the market cap under which cryptocurrencies fall under:

  • Large-cap is considered to be a sign of stable and safe crypto investment. These cryptocurrencies usually have a market cap of more than $10 billion and are less volatile but still riskier than stocks;
  • Mid-cap is the metric of cryptocurrencies that have the potential to become large-cap in the near future. These cryptocurrencies can have a market cap anywhere between $1 billion to $10 billion;
  • Low-cap cryptocurrencies are the riskiest since they have less than $1 billion in market capitalization. Most of these crypto projects fail, but some of them might have the chance to grow;

The best strategy you can adopt regarding marketing cap is to invest in large-cap cryptocurrencies because they can provide considerable growth in time and mid-cap for better financial outcomes.

Different industries

Investing in blockchain technology, which has spread among most industries, is also a good strategy for diversification. This process might be more complicated since you need to buy an exchange-traded fund and participate in crowdfunding, but if you’ve gotten more experienced and want to invest in crypto for the long term, it’s doable. You can choose from the following:

  • Decentralized finance (DeFi) allows you to take control of your finances in a digital manner;
  • Financial technology (Fintech) provides the use of technology for delivering financial services. PayPal is such an example;
  • Metaverse companies are spreading over many industries, so they’re the future of investments;
  • Exchanges can help you trade or invest in cryptocurrencies by only setting up an account on their platforms;

It’s essential to watch the trends closely and see which industries are flourishing and which are going downhill because this highly influences a cryptocurrency’s evolution. Luckily, many websites provide valuable information, but you need to constantly research and be knowledgeable regarding what’s happening in the market.

Different assets

The market provides an array of crypto assets that are more or less beneficial for your portfolio. Although not all of them are regulated, they still hold value and are considered essential for investors. Different assets include the following:

  • Cryptocurrencies can be used to exchange products and services for speculative purposes and as a store of value. They’re an excellent alternative for fiat money, and they’ve reached a crucial point in their development, closer to being widely accepted since there are income tax implications to them;
  • Utility tokens can also be used to buy products and services and provide access rights to some of them. Usually, the owner of the said product issues utility tokens within its private blockchain network and allows users to use and own them;
  • Security tokens are mainly used within companies since they’re sold or auctioned in Initial Coin Offerings for raising money to fund a business idea. They also come with a stake in the project and additional benefits, such as voting rights;
  • NFTs (non-fungible tokens) exist on a distributed ledger or blockchain and are unique assets that a person can own at a time. They can represent almost any tangible or intangible object, so that you can purchase songs, images or videos. Due to the fact that the NTF market is rapidly evolving, investing in NFTs is a good move for diversifying your portfolio.

Bottom line

Choosing to invest in cryptocurrencies requires you to be settled financially and have enough patience to see good results. To be successful, it’s necessary to have a diversified portfolio because, in the long term, it will minimize your risks and provide considerable returns, which is why you should learn to do this as soon as possible.

Christopher Stern

Christopher Stern is a Washington-based reporter. Chris spent many years covering tech policy as a business reporter for renowned publications. He has extensive experience covering Congress, the Federal Communications Commission, and the Federal Trade Commissions. He is a graduate of Middlebury College. Email:[email protected]

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