Why and How to Diversify Cryptocurrency Trading Portfolio
#Cryptocurrency trading#Automated trading strategy#Web 3.0 / DeFi / NFT / dApps / Metaverse+1 más etiquetas

Why and How to Diversify Cryptocurrency Trading Portfolio

Why is it necessary to diversify an investor’s cryptocurrency trading portfolio? What are the different strategies for a diversified crypto portfolio?

Bitcoin is considered to be one of the top-performing assets to date. In the past, Bitcoin has been named as the best performing asset of the decade; beating the traditional financial instruments like gold, stocks, bonds, etc.

In the year 2020 alone, this cryptocurrency delivered a return of nearly 300%.

In 2020, we also saw a number of institutional investors, hedge fund managers, and asset managers diversifying their trading portfolio and including a percentage of Bitcoin alongside bonds, stocks, equities, etc.

While prominent cryptocurrency assets including Bitcoin and Ethereum gained recognition in 2020, the digital currency space has moved far beyond the top ten assets.

The markets now incorporate more than 8000 coins based on different use-cases, properties, utility, and features. In this article, we seek to understand why it is necessary for an investor to consider diversifying a cryptocurrency trading portfolio which incorporates a multitude of digital currencies.

We also understand the strategic methods that may be employed to build a diversified crypto portfolio.

Why Diversify Your Cryptocurrency Portfolio?

A diversified crypto portfolio refers to the act of investing in multiple digital currency tokens to reduce the factor of risk in the event that one or more failed to perform.

The basic aim of diversification is to lower the impact of negative events by not putting all your eggs in one basket. Investors who invested in Bitcoin during the 2017 bull run received a sharp blow when the price of Bitcoin fell by more than 50% in 2018.

By investing in multiple cryptocurrencies, investors can protect themselves against such negative events. Moreover, a diversified cryptocurrency portfolio also presents an opportunity to leverage the volatility in coin prices and also invest in cryptocurrency projects, at a fairly low valuation, that can yield massive returns.

Hence, the best-diversified crypto portfolio facilitates mitigating risks and increasing the chances of yielding returns from cryptocurrency investments.

Crypto Diversification Strategy: How to Diversify Your Crypto Trading Portfolio?

Investors diversify their trading portfolio depending upon different aspects, depending upon an individual’s preference. Crypto diversified strategies include a mix of coins based on risk-factor, property, type of tokens, functionality, and more.

In this crypto diversification strategy, we have divided assets based on their properties and functionality.

1. Diversification Based on Industrial-Use Case

The landscape of blockchain incorporates multiple use-cases from different industries including real estate, healthcare, finance, supply chain, governance, and more.

Decentralized applications belonging to different use-cases are built on the blockchain network. These dApps employ a utility token based on their ecosystem. The valuation of these altcoins is proportional to the success or failure of the project.

Along with including safe assets like Bitcoin and Ethereum, such altcoins facilitate a trader with a chance to invest in a blockchain project at a low valuation.

In the next few years, as the technology matures, it is likely that some of these projects will yield huge returns. Investors can include some of these tokens in their cryptocurrency portfolio to leverage long-term benefits from these projects.

2. Diversification Based on Solutions

In this part of the strategy, investors include coins that facilitate new protocols, solutions in an existing industry, and service providers in the crypto and blockchain space.

Solutions in the cryptocurrency industry may include new protocols like DeFi, crypto exchanges, wallet service providers, etc. By including a percentage of investment in solution-based cryptocurrencies, an investor leverages the growth in the supportive infrastructure in the blockchain ecosystem.

Furthermore, as the industry enters mainstream adoption such solutions are likely to gain substantial growth. Investors can leverage this opportunity for long-term investment and stability in their trading portfolio.

Moreover, if one or more solutions are likely to click, investors can also expect substantial returns. For instance- Newly introduced DeFi protocols yielded returns of more than 600% in 2020 alone.

3. Diversification Based on Inherent Property

The space of cryptocurrencies has expanded to a multitude of tokens with different inherent properties and catering to different functionalities. Tokens are segregated based on their properties like privacy coins, stable coins, staking coins, etc.

It is likely that one or more of these segments are likely to gain popularity in the next few years.

For instance, traders have started leaning towards privacy coins and the rising trading volume may bring a surge in demand for privacy coins. Furthermore, staking has become a popular activity for passive investment in cryptocurrencies. Investors stake cryptocurrency tokens that allow them to yield a steady return.

The market of stablecoins has more than doubled in 2020 as investors increase their crypto holdings in stablecoin investment. Stablecoin investment also protects an investor against sudden volatility in cryptocurrency prices.

4. Diversification Based on Geography

One of the aspects of a crypto project affecting its popularity is based on the geographical location. Crypto diversification strategy enables assigning a percentage to coins based on their geographical regions.

For instance, some projects in Asia have a larger community of people. A larger community has a certain factor of impact on the success or failure of the project.

With this factor, it may be advantageous to mix projects belonging to different geographical regions like Asia and Europe. This helps in creating a balanced crypto portfolio based on regional impact.

Bottom Line

Bitcoin and Ethereum continue to remain the top prominent investment assets in the cryptocurrency markets. However, cryptocurrency projects and protocols subsequently hold the potential for unprecedented growth in the next few years.

Moreover, diversifying a crypto trading portfolio facilitates a trader with instruments that help mitigate risks and subsequently increase the potential for returns.

While the space of digital currencies holds potential, diversifying with strategy helps a trader to leverage the space with maximum potential.

Imagen de la bandeja de entrada


Recibe el correo electrónico semanal con análisis de crypto exclusivos noticias que vale la pena leer. Mantente informado y entretenido, gratis.


Bot automatizado de clase mundial para el comercio de criptomonedas

Automatiza tus operaciones

Artículos relacionados

Bot Trading 101 | How To Apply a Scalping Strategy
#Automated trading strategy#Strategy designer#EMA+3 más etiquetas

Bot Trading 101 | How To Apply a Scalping Strategy

Cryptocurrencies | BTC vs. USDT As Quote Currency
#Bitcoin#crypto trading#crypto trading tips+2 más etiquetas

Cryptocurrencies | BTC vs. USDT As Quote Currency

Technical Analysis 101 | What Are the 4 Types of Indicators?

Technical Analysis 101 | What Are the 4 Types of Indicators?

Bot Trading 101 | The 9 Best Trading Bot Tips of 2023
#crypto trading#trading bot#crypto trading tips+2 más etiquetas

Bot Trading 101 | The 9 Best Trading Bot Tips of 2023

¡Comienza a operar gratis con Cryptohopper!

Uso gratuito, sin tarjeta de crédito.

Cryptohopper appCryptohopper app

Descargo de responsabilidad: Cryptohopper no es una entidad regulada. El comercio de bots de criptomoneda implica riesgos sustanciales, y el rendimiento pasado no es indicativo de resultados futuros. Las ganancias mostrados en las capturas de pantalla de los productos tienen fines ilustrativos y pueden ser exagerados. Participe en el comercio con bots únicamente si posee conocimientos suficientes o busque la orientación de un asesor financiero cualificado. Bajo ninguna circunstancia Cryptohopper aceptará responsabilidad alguna ante ninguna persona o entidad por (a) cualquier pérdida o daño, total o parcial, causado por, derivado de o en relación con transacciones que impliquen nuestro software o (b) cualquier daño directo, indirecto, especial, consecuente o incidental. Tenga en cuenta que el contenido disponible en la plataforma de comercio social Cryptohopper es generado por los miembros de la comunidad Cryptohopper y no constituye asesoramiento o recomendaciones de Cryptohopper o en su nombre. Las ganancias mostrados en el Marketplace no son indicativos de resultados futuros. Al utilizar los servicios de Cryptohopper, usted reconoce y acepta los riesgos inherentes al comercio de criptomonedas y se compromete a eximir a Cryptohopper de cualquier responsabilidad o pérdida en que incurra. Es esencial revisar y comprender nuestras Condiciones de servicio y Política de divulgación de riesgos antes de utilizar nuestro software o participar en cualquier actividad comercial. Consulte a profesionales jurídicos y financieros para obtener asesoramiento personalizado en función de sus circunstancias específicas.

©2017 - 2024 Copyright por Cryptohopper™ - Todos los derechos reservados.