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A Beginner’s Guide to Diversify your Cryptocurrency Portfolio
Diversification in financial investment is a process where an investor selects many different investment options in various fields. For instance, a general investor may invest some of his wealth in well-performing stocks, real estate, and crypto assets.
When diversifying, investors look at some of the best-performing, high-demand, and other assets that look like suitable investments for the future. Moreover, the investor often thinks about a particular investment’s long-term or short-term maturation.
In cryptocurrency, diversification involves selecting different crypto assets with better prospects and putting your money in them. But why is diversification in cryptocurrency important?
Why is Diversification in Cryptocurrency Important?
There are surging cases of crypto volatility, especially in assets like bitcoin, which increases and plunges in prices in hours. Therefore, Bitcoin’s volatile nature is a massive threat to investors who put all their money in BTC.
The financial world’s volatility is one factor for investors to diversify their portfolios to hedge against price jumps and volatility. Diversifying also boosts your chances of earning returns from your investments by maximizing the benefits of different coins.
Big players in the crypto market are also diversifying, intending to maximize their returns. It would help if you even choose from a wide range of coins coming up which have good investment prospects and enjoy the best future returns.
What can you Consider when Diversifying?
There are several ways of looking at cryptocurrency diversification, helping you choose the best asset for investment. Keep reading to find out more.
Type of Crypto Asset
Looking at crypto-assets is one of the best ways of ensuring you make the right investment decisions, especially when it comes to diversifying. There are several types of crypto assets, each with advantages and disadvantages over the other assets.
The first lot of crypto assets are called cryptocurrencies, including Bitcoin, Ethereum, and many other less common assets. Another group of crypto assets is privacy coins, which include Monero, Zcash, Dash, etc. These assets aim to bolster privacy in the crypto world by mainly hiding some of the transaction details.
Since most people on the internet and the financial world need their transactions’ privacy, some of these coins are in high demand, thus, good investment prospects. The third group of crypto assets is stablecoins.
These assets are immune to volatility in the crypto markets. This is because they have an asset backing, either fiat currency, cryptocurrency, or a commodity like gold. So using these as part of your portfolio guarantees the protection of your wealth value and, in some cases, perpetual rises in value.
Diversification Based on Solution
Another vital consideration is the crypto assets’ solutions in day-to-day financial activities. For example, there are wallets, exchanges, and staking platforms that explain the day’s crypto activities.
Other platforms offer cloud services and blockchain interoperability, some of which will have high demand shortly in both the crypto and fiat worlds. Investing in such will guarantee you the best returns in the future.
Diversification Based on the Industry
The different industries touched by the crypto world are also excellent factors to consider when investing and diversifying. For instance, crypto solutions in gaming, medicine, gambling, finance, supply chain, technology innovation, etc. When you invest in well-performing industries, you put yourself in a position to earn better in the short and long term.
Diversification Based on Geographic Location
Different coins from different places perform differently. For instance, Asian-based crypto assets have huge loyal customers who accept them as a medium of exchange, and as such, investing in them will guarantee good returns.
However, you can add crypto assets from different places globally to ensure balance in your portfolio. When choosing investments, consider the legal ramifications of the particular coin in your country of origin.
Time diversification involves splitting your investment into time intervals to avoid risks associated with investing large amounts at once. You can invest on a regular interval timing, and by the end of some time, you will have all your investments ready.
What are the Most Common Diversification Strategies?
The Crypto Beginner
If you are a beginner in the Crypto world, you should choose some of the assets you like and allocate equal portions of capital to the assets. The risk level in this investment is low since the risk is distributed among a world of good performers in the market.
A Conservative Investor
This investor will invest in the top-performing assets and equally distribute their funds. For instance, as a conservative investor, you will choose only bitcoin, ethereum, and Litecoin, which are the best performers, distribute your amount equally among the three assets, and avoid all other coins.
If you have large sums of money to invest, you can choose an extensive range of assets. Foremost, invest a big portion of your money in the top performers, then a small amount in the small performers.
Investing in only one asset in the financial world is a dangerous game and can cause severe future losses. As a good investor, you must invest your capital in a range of assets in the crypto world. It would help if you considered different things, the foremost being the crypto space’s investment option solutions.
Additionally, you can look at different industries and their performance and invest some amount in several sectors. There are different types of crypto assets, and considering that will help you choose the assets that best suit your investment. It would be best if you protect your wealth while investing, and diversification is the best solution.