5 tips for building a balanced crypto portfolio

Never put all your eggs in one basket – an anecdote that has significant meaning in the crypto market, especially given its volatile nature. By diversifying your crypto portfolio, you can balance risk and return. However, spreading your money across different types of digital assets is easier said than done.

There are so many different coins and tokens to choose from, each with their pros and cons. Also, it’s hard to tell which one will go up and which one will shoot for the moon. With this in mind, we’ve created a handy five-point checklist to help build a balanced crypto portfolio.

Having market leaders is always a wise choice

The top 10 cryptocurrencies have large market caps and are generally quite stable. This makes them relatively safe inclusions for your crypto portfolio. Some of these coins, such as Bitcoin and Ethereum, can be very expensive. However, they are divisible by up to 18 decimal places, so you can invest in fractions instead of buying a whole BTC or ETH.

Diversify based on use cases

Different coins have different uses. Some may be solely cut out for remittance and payment, while others may be the backbone of a crypto gaming platform. In addition, there are also metaverse coins, privacy coins, governance tokens, utility tokens, social tokens, etc. It is good to have a mixed bag of the best coins from each category.

Look for new coins with future potential

It is important to diversify according to market value. Large-cap cryptocurrencies are stable, but newer coins with smaller market caps may have strong growth potential. Furthermore, newer coins usually have lower prices. And these prices are not always indicative of future valuations.

So review the white papers of the various new entrants to determine their long-term plausibility. If you see potential, you can put some money behind it, but no more than you are comfortable with losing completely. Then, if the project grows, you can ride on the gains; if not, you can just cut your losses and move on.

Crypto derivatives and other asset classes

Crypto derivatives are another great way to diversify your investment portfolio. They allow you to invest in the burgeoning crypto market without as much direct exposure. As such, investing in crypto futures, options, contracts, etc. is an excellent option. You can also invest in companies with large holdings of Bitcoin or other cryptocurrencies. The valuation of these companies should increase if their crypto holdings rise over time.

Diversify based on type of blockchain

Cryptocurrencies are powered by blockchain technology. However, not all blockchains work the same way. Proof-of-work blockchains use huge amounts of energy and have received a lot of criticism from lawmakers and governments around the world. Some blockchains also support smart contracts and decentralized applications (dApps).

As such, their utility increases as they are the foundation upon which other projects are developed. Blockchains also vary in transaction processing capabilities, security levels, and decentralization. These factors can affect a blockchain’s use cases and future potential and, of course, its price valuations.

Before investing in the digital asset market, you need to determine your risk appetite and disposable income. It is also important to compare different coins, understand their fundamentals, look at their technical indicators, and so on, before putting down any money.

Finally, remember to only invest as much as you are comfortable losing completely.