The Importance of Diversifying Crypto Portfolio

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Written by
3 years ago

January 12, 2020

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Diversifying a portfolio is an aspect you need to master before putting your money at risk.
It is a process of spreading your money in different assets to minimize the risks and big losses from unexpected market swings and global slash events.

If you have experienced the market swings these past few days, then for sure you know now the feeling of being in a volatile market. Just imagine if you invested all your money in a single asset like Bitcoin, if the market takes a sudden U-turn, you could lose your whole investment in a single blow.

Photo credit: axiomadvisory.com

Putting all eggs in one basket could expose you to a high-risk level and diversifying your portfolio will help you alleviate risks and secure your financial goals without endangering your money. It could also boost your returns, the more coins you have invested, the higher the chances to get higher returns from one of them.


The main reason for portfolio diversification is to minimize the market (systematic) risk and coin-specific (idiosyncratic) risk on your portfolio.

Market (Systematic) risk is the risk related to the overall performance of the crypto market. Coin-specific (idiosyncratic) risk refers to the risk isolated in a single coin or token. https://masterthecrypto.com/4-types-of-coins-to-diversify-your-crypto-portfolio-manage-risks/


By diversifying your portfolio, your investments would not be affected in times of market swings.

How to diversify your crypto portfolio?

Here are things to take into considerations in diversifying your portfolio:

  1. TYPE OF CRYPTOCURRENCY

Photo credit: masterthecrypto.com

There are more than 7,000 cryptocurrencies in the crypto market and not all are the same. Here are the four groups of crypto you should know before choosing the right cryptos to include in your portfolio.

  • THE FOUNDING FATHER: BITCOIN

Cryptocurrencies would not have existed if not because of Bitcoin. It's the underlying technology- Blockchain – kickstarted a diverse industry of coins and tokens that solves real-world issues. It is the largest valuable crypto based on the marketcap and its massive volume makes it one of the most volatile, yet most profitable crypto.

Including Bitcoin in your portfolio is a good option.

  • THE MOST ADVANCED TECHNOLOGY: ETHEREUM

The Ethereum blockchain is the most developed in the crypto industry, leading many innovations within the crypto industry. Its most credible blockchain brings Ethereum to the second spot of the largest and most valuable crypto on the marketcap.

The more projects built on Ethereum blockchain, the higher the demand, and the higher the ETH price. It remain the mlst valuable in terms of innovation, development, and credibility, despite of its numbers of competitors like NEO and WAVES. So don't forget to include Ethereum in your portfolio.

  • PASSIVE INCOME EARNERS

Interest-bearing coins like Stellar, NEO and Bankera, are coins that will give you passive income by holding on to your current coins.

Airdrops and hard forks are another way of earning passive coins. Airdrops are given for free to hodlers of a certain coin to market their new projects. Meanwhile, hardfork represents the coin that wants to deviate from an existing coin and are freely distributed to the hodlers. For example, Bitcoin Cash is separated from Bitcoin due to differences in ideology. Hodlers of Bitcoin at the time of snapshot received an equivalent amount of BCH coin for free.

Just make sure to search well about the airdrop you want to claim as scams are rampant in the market. Airdrops should be free, so if it requires a transaction fee, it is a scam.

So if you are a keen investor, you must include interest-bearing coins in your portfolio.

  • MARKET HEDGER: STABLECOINS

If you want to protect your portfolio from volatility of the market, Stablecoins are good option and it provide you a 'cash' whenever you need it. Examples of Stablecoins are Tether (USDT), USDC, Pax, and TrueUSD. They are tied to fiat currencies and are protected from the volatility of the crypto market. Stablecoin Libra was introduced by Facebook tied to fiat currencies. Including stablecoins in your portfolio is a must to easily move out from the market's unexpected events and you can simply buy more crypto when the prices plummet.

Always do extensive research about the cryptocurrency you want to invest in and these four basic groups of crypto is just your basis.

  1. INDUSTRY DIVRSIFICATION

Photo from Steemit by sudipn749

Investing in as many industries as much as possible can absorb the stress in case a certain industry suffers a big hit.

Example of industries are as follows:

  • Medical

  • Finance

  • Supply chain

  • Data and data analysis

  • Innovation (Artificial Intelligence or Machine Learning)

Do not invest in a project if you do not know much about it. Always do further research to get a better knowledge of the industries’ risks and opportunities.


4. GEOGRAPHICAL DIVERSIFICATION IN CRYPTO

Sample portfolio from Australian Unity


Considering projects from different parts of the world is also a great way in crypto portfolio diversification.

For example, Asian blockchain projects have attractive investment option since they often have big and loyal followers, it determines the success of a project. Some good European and American projects can also be included in your portfolio to make it well-diversified geographically.

  • TIME DIVERSICATION

Photo credit: bankrate.com

Lastly, time diversification is the most proven strategy. Timing the market is difficult and just a matter of luck. You don't know when it will go down to buy a coin, and when it will go up to sell the coin.

What action did you take when the BCH price hits the ATH? What about when it drops yesterday?

Understanding the timing is very important so that you know what to do when there is a sudden U-turn in the market.

The common principle in the crypto market is to buy when the market is red (downtrend) and sell when the market is green (uptrend). Knowing the action to take in times of occurring circumstances is more important than the predictability of market price.

ADVANTAGES OF PORTFOLIO DIVERSIFICATION

  • Makes Your Portfolio Better Shock-Proof. A well-diversified portfolio can manage the losses well.

  • Better Weather Market Cycles. The market is so volatile. It goes up and down and sometimes stagnant. With portfolio diversification, you can better weather the market's volatility and gain from the bullish run.

  • Enhance risk-adjust returns. A diversified portfolio takes a lesser risk than a non-diversified one.

  • Leverage Growth Opportunities Present in Other Sectors. When you invest in different assets, you can take the opportunity present in them.

  • Provides Stability and Peace of Mind. A much stable portfolio will really give you peace of mind. It cuts out the emotional quotient with more predictable returns.


BOTTOMLINE:

Any trader wants to make a profit but alongside are the risks. The higher your risk, the higher your profit, but high risk also implies big losses. 

You can reduce the risks as much as possible and any unexpected event such as the Coronavirus can crash the global market slashing down your crypto portfolio. Always remember that any investment is risky, however, you can manage risks to minimize the losses. You can reduce the impact of global slashing events on your portfolio by managing your investments well and by applying good strategies, you can protect your portfolio against risk and unexpected market swings.

Disclaimer: I am not a financial advisor and always DYOR (do your own research) before investing. Any strategies stated in this article are just based on my own understanding and research. Any risks based on this article are committed at your own risk. 

Thanks for reading @Jane

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Comments

Thanks dito.. Reminder to sakin.. D ko pa na diversify your portfolio ko.. Tho I have 3 coins, maliit lang din naman yung dalawa.. Bawi ako next time at lalagay ko din sa ibang coins.. Thanks, Jane. 😘

$ 0.03
3 years ago

Unti untihin lng.. Kya tan 😁 kahit $10 per coin lng muna.. Gagawa ako today ng article about sa coins na gusto ko iinclude sa portfolio

$ 0.00
3 years ago

Cge cge... Suggest ka nga coins na pde namin itry.. Yan ang gusto ko makita.. Para alam na namin ano susunod naming iinvest.

$ 0.00
3 years ago

Is this meant for me? 😂 I lose too much.

$ 0.00
3 years ago

Haha . be careful sa mfa binibili mo esp the new coins..

$ 0.00
3 years ago

As of now I have nothing in my wallet coz I just become active here just a minutes ago. But I'm interested in crypto related topic. From what I heard on what happened to Ripple, diversifying is really a good choice because we can't tell of what might happen to some crypto if for example I am hodling just 1 crypto, and I invested all of my money in that 1 but suddenly unexpected things happen then I lost all my money. So I can say that this is really the best thing to do.

$ 0.00
3 years ago

How did you know bout this platform? Welcome here

$ 0.00
3 years ago

I'm an old user here, I just had to lie kow for some personal reasons that's why I'm gone for too long.

$ 0.00
3 years ago

Susundin ko ang iyong payo madam, nagbabalak na nga ako mag buy kaso mejo mahina ang kitaan pa. Pero meron naman na akong eth siguro naman pwd na $.99 baka bago matapos ang taon maging $10 na yan 😂, sana sana lalo mag $10k daw yan. Sa btc sana kaso mo, ang mahal mg fee hidoy yan. Pero mahaba pa naman ang taon, sana mabili ko ung gusto ko. Bch eth, btc at ltc yan muna sana.

$ 0.00
3 years ago

Same kyo ni jeneath 🤣🤣 bawasan mo kc milyones mo sa bch.. 🤣

$ 0.00
3 years ago

Haha melyones 😂😂, ikaw jan ang may milyon na ee 😂

$ 0.00
3 years ago

Yeah yeah yeah grabe naman po yung article pang expert na😆 I'm planning to buy a new coin kaya nag-iisip ako kung idedelete ko ba ml😆 and yes, I decided to delete it😆 I will install binance and trustwallet/atomic wallet. Ano po kaya pwedeng coin ang bilihin ko?🤔

$ 0.03
3 years ago

Yung mga nkasulat sa taas. Mganda isama sa portfolio.. Sa mga murang coin naman.. Xlm,eos,xmr,dot,link,etc,ltc, ada, mga ganun..

$ 0.00
3 years ago

I think sa ltc na lang ako maglagay, balak ko sana sa trx pero may nagsabi sa akin na pang longterm daw talaga trx

$ 0.00
3 years ago

Comp dn mganda..

$ 0.00
3 years ago

That's why I'd like to invest not just on bch. Good thing nasa farming Yong iba. at di pa Naman lumagapak Ang Bch ng masyado kaso Ang 10 ko naging 7 buti naging 8 na wag Lang mag down NG pababa. Ano nga pala Ang stellar? at neo?

$ 0.03
3 years ago

Stellar yung XLM i guess narinig mo na yan.. For NEO you can check it here https://en.m.wikipedia.org/wiki/NEO_(cryptocurrency)

$ 0.00
3 years ago

oo sa Coinbase narinig ko na c stellar. okay thanks check ko so Neo.

$ 0.00
3 years ago

great dear i have subscribe you

$ 0.00
3 years ago

I get too diversified I think.

$ 0.00
3 years ago

May 0.01 pesos ako sa ethereum and 1.56 pesos sa btc. Sana maging 1k pesos yan before 2021 ends 😆🤞

$ 0.03
3 years ago

I have 0.04pesos in eth hahaha then 0.01pesos in btc😆 baka maging 1k din hahahaha

$ 0.00
3 years ago

Let's hope for the best. Hahaha

$ 0.00
3 years ago

🤣🤣🤣 ang laki

$ 0.00
3 years ago

Natawa naman ako , wait lang madam natatawa ako 😂😂😂. Perobhindi malabong mangyari yan, lalo na pag nag $100k na si btc, ihanda mo na wallet mo

$ 0.03
3 years ago

Cguro yung my 5BCH ngayon, milyonaryo na sa 2022

$ 0.00
3 years ago

Sureball yan, instant ano. Pero lampas 5 bch na din sau sana kung hindi nakakalat yang crypto mo ano

$ 0.00
3 years ago

Hndi pa oi 🤣 sa end of the year pa lol

$ 0.00
3 years ago

Ah hindi paba, kala ko namam naka 5 bch kana huehue. Sana all sananako 😂

$ 0.00
3 years ago

kuripot si bot minsan. Kya impossible

$ 0.00
3 years ago

Tama tama, tiba tiba kaya dapat talaga hodl lang 💪

$ 0.00
3 years ago

Hahahaha. Grabe siguro price hike nyan madam kung mangyari man. Lagpas pa sa Mt.Everest 😆

$ 0.00
3 years ago

Cocomment lang ako na masakit at durog parin puso ko. Hahahaha! 💔🤣 But yeah, I agree, diversifying your portfolio is better than keeping all your money into one coin. Sabi mo nga, high risk, high reward. Pero pag lumagapak naman ung market, mas malaki pa ung loss kesa sa gain. Pero okay lang, babawi din naman. Ge, iyak ulit ako. Hahahaha 🤣🤣🤦‍♀️

$ 0.03
3 years ago

Haha... At least alam mo na gagawin sunod.

$ 0.00
3 years ago

Sana maapply ko ung nalearn kong lesson sa susunod. 🤣 Anyway, if you were to diversify your portfolio, what coins are you going to buy? Hahaha! Kukuha lang ng idea, walang kwenta yata pinagbibili ko. 🤣🤣

$ 0.00
3 years ago

Feeling ko nsa portfolio mo na. My btc at eth na ko, ltc dadagdagan ko pa.. Xlm,eos,dot,link,xmr, ada, bnb, etc, isip pa ko sa iba 🤣

$ 0.00
3 years ago