Daily fluctuations in the rate of even the most reliable cryptocurrencies sometimes reach 20-30%. Such volatility provides great prospects for earnings, but at the same time carries significant risks for investors. A cryptocurrency portfolio is a convenient tool for investors, thanks to which it is possible to diversify investment risks and correctly distribute capital to achieve the goal.
What is a cryptocurrency portfolio
Cryptocurrency portfolio – a comprehensive combination of a variety of cryptocurrency investor assets in the correct proportion. The key objective of the cryptocurrency portfolio is to ensure minimal risk and maximum return for the investor.
Unlike the stock market investment portfolio, risk diversification in this case is carried out not by investing in various assets, but by purchasing one asset – cryptocurrencies in different tokens.
If, according to financial experts, forming a traditional investment portfolio is only possible with a sufficiently large capital, then for the cryptocurrency market, creating a portfolio is relevant even for small investments. So, in addition to risk diversification, the cryptocurrency portfolio will allow you to participate in more projects, investments in which at the initial stage can bring high income in the future.
Why is it worth creating an investment cryptocurrency portfolio
Today, there are more than 1000 types of cryptocurrencies, but not all can become profitable for an investor. By investing their investment capital in one type of cryptocurrency, the investor risks losing all investments in the event of a collapse in the rate. Creating a cryptocurrency portfolio allows you to reduce the risks of loss and level them due to the increase in the cost of other cryptocurrencies.
For example, if all investment capital is invested in one type of cryptocurrency, then when the rate decreases by 20%, the investor loses the corresponding amount of percent of his capital. And if the investments were divided between the three cryptocurrencies in equal shares, then with a decrease in the exchange rate of one currency by 20% and an increase in the other two by 10%, the investor does not incur losses and can easily wait until the time the value drops. Even if the value of the remaining assets does not completely cover the depreciation, such a fall in the total investment capital is still reflected much less.
It should be remembered that no matter how stable the cost of tokens or coins is, it will always fluctuate, and only a competent distribution of investments can make an investor resistant to such changes.
Among the additional advantages of creating a cryptocurrency portfolio of various tokens, an increase in the chances of successful investments can be highlighted. The cryptocurrency market is quite young, but rapidly developing. Not all investors have managed to appreciate the prospects of investments in cryptocurrencies, but recently there has been an increase in demand and interest of investors, which can lead to a stable increase in the value of coins of any relatively successful project. Most tokens represent promising projects that can become useful for humanity, which attracts a new audience to the market and new investment flows.
As you know, with the growth of investments, the value of coins also invariably grows, but it’s almost impossible to calculate exactly which project will attract the most investments. Choosing a strategy for investing only in ongoing and successfully functioning projects, such as Bitcoin and Ethereum, you can count on minimal risks, but you should not expect a quick high rise in their value. But beginning projects have the prospect of a profitability of thousands of percent, subject to successful implementation, but the risks of financial investment in them are great. Accordingly, by investing small amounts in various projects, the investor expands the profitability perspective for himself, while at the same time maintaining stability with proven investments.
How to build a portfolio of cryptocurrencies
The main principle of the correct distribution of assets in the investment portfolio is the diversity of assets. The cryptocurrency portfolio should contain all the tools for making money and reducing risk in the right proportions. Most of its components should contain popular cryptocurrencies with stable growth and demand among users. Experienced investors have developed several optimal cryptocurrency portfolio formation strategies.
For a cautious low-risk investment should:
- Invest 80% of all investment capital in coins that have a stable exchange rate and occupy a leading position in the rating of cryptocurrencies;
- Allocate 15% for new tokens that have high liquidity and an average rate;
- 5% to leave for tokens of promising projects that are at the initial stage of development and have a low cost.
As you know, with an increase in the risk of investments in the future, profitability also grows. For more risky investments in the portfolio, you can include ICO projects that are capable of generating impressive income with minimal investment. In this case, the assets should be divided according to the following principle:
- 60% invest in major cryptocurrencies;
- 25% to allocate for popular altcoins with a stable rate and a prospect for growth;
- 15% invest in ICO tokens.
The best cryptocurrency portfolio – formed on the basis of proven strategies. Otherwise, the improper distribution of funds can only compensate for the loss, but absolutely not generate income. Too overstated indicators of high-risk investments can nullify income from profitable projects.
The principles of selecting currencies for investing
The investment cryptocurrency portfolio consists mainly of coins with high stable value growth. It is at their expense that diversification of investment risks is achieved. The role of such a currency may be Bitcoin or Ethereum.
Altcoins that fill the rest of the cryptocurrency portfolio should be selected based on an analysis of the prospects of the coin.
- The prospects of the project that is behind the coin will ensure further growth of the token. If the development team is able to propose a new idea or significantly improve an existing one, then the token will be in demand and will gradually grow.
- An analysis of quotes and trading volume on a coin will show the real demand and inflow of investments. If the trading volume is constantly increasing, then over time, the total capitalization of the currency increases and, accordingly, the cost.
- Maximum coin issue is an important indicator. In some cases, the maximum issue may exceed the real demand for coins. In this case, achieving a high cost of tokens will be much more problematic.
- The development team must be actively involved in improving and promoting the project. The prospects of an idea will not be profitable if the public does not know about it. The majority of investors prefer the Buy & Hold strategy, the essence of which is to purchase cryptocurrencies for long-term storage with an increase in the value rate.
Experts note that in recent years, the most promising for investment have become coins designed to modify the economy and habitual life of humanity, which existed before the advent of blockchain technology. Among these currencies can be identified EOS, NEM, NEO, IOTA.
It is considered reliable to invest in the TOP-20 cryptocurrency rating. Often, such currencies have a stable exchange rate, high liquidity and a tendency to constant growth. The cryptocurrency portfolio must be constantly reinvested and modified. Cryptocurrencies can lose popularity, leave the market, become unprofitable, and new developments constantly come in their place, which can bring even more income in the future. It is important for a cryptocurrency investor to monitor market trends, be able to get rid of losing coins in time and replenish their capital with new ones.
Where to create a crypto portfolio
The simplest method of forming a cryptocurrency portfolio is the exchange. It is easy to buy cryptocurrency portfolio on it, while the assets will be distributed by variety and will be displayed in your account. In addition, this is a convenient way to monitor the value of cryptocurrencies and trading volumes, which will help to notice trends in decline in time and sell unprofitable assets. The only drawback of such storage is unreliability. Most exchanges store encrypted private keys to user wallets on their servers, without issuing them to users, that is, in fact, in this case you really do not own your assets.
For more reliable storage, use multi-functional desktop or hardware wallets (such as Ledger Nano S or Trezor).
The benefits of creating a cryptocurrency portfolio
Creating a cryptocurrency portfolio allows the investor to distribute his investment capital as efficiently as possible, reduce the risks associated with high volatility of the exchange rate, and begin productive work to increase the financial condition.
For a high-risk investment in cryptocurrencies, this is an integral part of a successful investment. Only using a cryptocurrency portfolio can one rely on the relative stability of profitability and risks in the rapidly developing world of cryptocurrencies. Even investing in Bitcoin is risky enough, because it often happens that the most stable cryptocurrency loses significantly in value, but sometimes against the background of this, altcoins begin to grow and can partially or completely cover losses.
When investing in cryptocurrencies, a decrease in the value of the main asset often gives rise to panic, against which an inexperienced investor is inclined to sell his assets at a loss-making value, and the proper diversification of risks reduces the critical loss indicator and allows you to wait out unrest.
A cryptocurrency portfolio is a must-have attribute for a successful investment in cryptocurrencies. When distributing assets between various cryptocurrencies, one should adhere to proven development strategies, as well as give preference to cryptocurrencies with a growth prospect. Equally important is the proper storage and maintenance of their assets. Do not neglect safety measures and constant monitoring of the market.