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The Essence of Diversifying Your Crypto Portfolio

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Written by   131
1 year ago
Topics: Cryptocurrency

Crypto Currencies are gradually winning the space into our daily activities based on their roadmaps and what they could aid us accomplish.

Several years ago, when Bitcoin first surfaced, it had just a little percent of people interested in it. Some had believed it was the usual Ponzi scheme brought to extort money from others and also that it will get to crash just like others did. This believe got more intense during the 2017 crypto crash were a lot of crypto holders lost a lot of money. Despite of of this, Bitcoin was able to clear doubts by breaking it's all time high (ATH) and soared even higher.

Today, in developed, under-developed and undeveloped Countries, Crypto Currencies have been surfacing the headlines and it has still a minor population but greater population than that of previous years talk about crypto currencies. Investors are gradually increasing and more persons are getting Interested in Crypto currencies.

If you are new to Crypto Currencies, you can learn 3 Legit Ways To Earn Crypto Currencies passively

Context of Diversifying in Crypto Currencies

According to the Cambridge Dictionary, to diversify means, 'to start to include more different types or things'. In the context of this article, it means including more different types of crypto currencies in a portfolio.

The benefits of adding crypto currencies are assessed in terms of risk-return profiles, cumulative wealth and downside risk.

Diversifying your Crypto Portfolio would require a level of study and understanding of the crypto currency you wish to add to your portfolio. This may prompt you in making some research on what types of Crypto Currencies are in existence, their functions (roadmap) and how functional their developer's community are.

Types of Crypto Currencies

Crypto Currencies being cryptographic are not limited to just one as there are others who emerge just to target the limitations of others. There are three major types of Crypto Currencies, they are: Bitcoin, Altcoins, Stablecoins and Tokens.

Bitcoin

Being the first successful Crypto Currency in existence, Bitcoin itself has won the spot of being specifically a type of Crypto Currency. Bitcoin owns the mother Blockchain which gave birth to other Crypto Currencies either by forks or as an alternative to solve bitcoin's limitation.

Bitcoin had it's initial aim of aid trades between peers as stated on the white paper released by Satoshi Nakamoto, this aim went gradually out of point as the price soared. It became more expensive to be used for peer to peer Transactions but a better currency for store of value. This gave birth to the Altcoins.

Altcoins

As the price of bitcoin kept soaring, it became more expensive to transact with it. To Create better alternatives to solve bitcoin's limitation, other Crypto Currencies were created, some with a little difference from bitcoin's BlockChain technology and some very different from bitcoin. One of such different Altcoins from Bitcoin is Ethereum, which is designed as a huge platform for building apps on a blockchain.

Stablecoins

Stablecoins are crypto currencies created to curb volatility that occurs in the General crypto currency market. It has it's value tied to an outside asset, such as the U.S. dollar or gold, to stabilize the price.

Stablecoins try to tackle price fluctuations by tying the value of crypto currencies to other more stable assets – usually fiat.

Tokens

This type of Crypto Currencies are usually utilized on Decentralized applications. Unlike Bitcoin and Altcoins, tokens are not able to operate independently and are dependent on the network of another crypto currency. That means they do not have their own underlying DLT or blockchain, but instead, are built on top of an existing cryptocurrency’s blockchain.

After understanding The different types of Crypto Currencies, one would be able to understand the essence why Crypto Currencies diversification is important in a portfolio.

Essence of Diversifying Your Crypto Portfolio

Since majority of these crypto Currencies have their own different purposes, roadmaps and usage, portfolio diversification will help one suit a need, control investment risks, liquidate etc

Investment

One who owns a portfolio made of 100% Bitcoin may face some certain risks when Volatility strikes. It might be a good investment but can't control volatility.

Buying and Selling of Goods

In such use case, Bitcoin might not be a good crypto currency to be put to use due to its high fees for transacting. In this case, Altcoins like Bitcoin Cash, Litecoin would be used instead because of they charge lesser for transacting.

One may ask which is the best crypto currency for buying and selling goods, Bitcoin Cash, is a better option.

Risk Control

When volatility is perceived, Stablecoins guard the risk. In such situations, you can convert a certain percent of your portfolio to Stablecoins like USDT to stabilize your investment.

Disclaimer

Ensure to do your own research on crypto Currencies you are adding to your portfolio.

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Written by   131
1 year ago
Topics: Cryptocurrency
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Comments

This is exactly what I do, I love to cut down my cash into different investments(crypto), most especially cheaper currencies that I see fit of a promising future

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1 year ago