How to handle your Cryptocurrency Investment Portfolio?
A concise guide to basics of portfolio, risk management, and exit strategy in the cryptocurrency market.
Considering the trends, a lot of individuals with minimal experience dive into the bandwagon. Cryptocurrency is not like online shopping on Amazon where it is risk-free and if you dislike the product, you can return it. In simpler terms, many individuals make the mistake of investing in cryptocurrency purely lured by the word of mouth of someone in their circle.
In case you have ever invested in mutual funds, you know the funds are invested in several companies to mitigate the risks involved. Portfolio management for cryptocurrency is exactly like that. Putting all of your eggs in the same basket could be a recipe for disaster, especially when so many factors operate out of your control. Diversification of investment provides you with the risk management factor where if one currency tanks, the others can minimize the damage. Hence, a portfolio is important.
Simply seeking investment guidance or expert advice is not always reasonable. However, the investment goals are different for everyone. What is deemed useful for someone else may not be useful to you. Therefore, it is also crucial that you come up with an investment strategy that helps you maintain a well-balanced crypto portfolio. Below, we discuss some simple ways to achieve crypto investment goals with effective investment portfolio diversification strategies.
What is a cryptocurrency portfolio for investors?
Simply put, all the coins and tokens you own represent your cryptocurrency portfolio. For example, let’s assume that you own 10 different assets, like Bitcoin, DOGE, USDT, ETH, etc., your investment portfolio comprises exactly these specific assets. The value of your investment portfolio solely depends on the current market prices of all of your cryptocurrencies. If you are just investing in cryptocurrencies, you may only have one asset in your portfolio. When you invest in more cryptocurrencies, your investment portfolio tends to be more diversified.
Why you should have a diversified cryptocurrency investment portfolio?
There is a common misunderstanding among beginners who are just starting to invest in cryptocurrency. Many of them believe that as long as they own some Bitcoin, they will become millionaires in the future. Of course, investing in Bitcoin may be a good starting point. But you must also consider the fact that the crypto ecosystem is much broader than Bitcoin.
Once upon a time, investors were very optimistic about Bitcoin. At the beginning of 2021, the value of Bitcoin soared at an unprecedented rate. In terms of market value, the world’s largest cryptocurrency had an ATH of $65,000 in April. It was followed by a sharp turn. The market was hit by a sharp drop, followed by a debate about Bitcoin’s power consumption.
Diversity can guarantee success.
One of the important benefits of balancing crypto portfolios is diversity. For example, if you hold Bitcoin, you will be prone to extreme ups and downs. As an investor, it is important that your cryptocurrency portfolio also contains altcoins, especially if you don’t want to experience the fluctuations in the market sometimes caused by the extreme volatility of Bitcoin.
Always be vigilant. Keep an eye on fluctuations in the market.
The future is not always as safe as we hope. In fact, the situation is quite the opposite. When you have a diversified investment portfolio, you basically have a better chance to choose assets you think may perform better than Bitcoin in the future. Although there can never be a guarantee that this is actually the case, you will at least be prepared to risk other coins and tokens. Always research different cryptocurrencies and pay close attention to projects that can solve real-world problems.
Balancing your cryptocurrency portfolio is crucial.
Having a diversified portfolio means you can use the proceeds of the best-performing assets more freely to rebalance your portfolio. For example, you have three types of assets in your portfolio: currency A (25%), currency B (25%), and currency C (50%). Now you decide to sell part of coins A and B (5% each) to buy more coin C, which currently accounts for 60% of your portfolio. As the value of Coin C increases, you decide to sell 10% of Coin C to buy Coin A and B. In this way, you can rebalance your cryptocurrency portfolio with the benefits of the best-performing assets.
Cost Averaging (DCA) Dollar-Cost Averaging (DCA) is an investment strategy in which you can divide your investment into a fixed amount of regular investment to reduce the impact of fluctuations on the overall investment. Since DCA is a long-term investment strategy, the impact of volatility and price averaging is small, enabling your cryptocurrency investment portfolio to achieve more active and sustainable growth over a longer span of time. For example, you have $1,000 to invest in Bitcoin, but you observe that the market is very volatile.
Here, you can wisely divide the money into five equal parts of $200 each, and then invest each part in Bitcoin on a fixed date each month for five months. When the market is bearish, DCA may be a good investment strategy. In this way, your final expenditure may be less than the advance payment you made when the market was bullish five months ago. Encrypted Portfolio Tracker You can have different assets in different portfolios. Therefore, monitoring all assets and keeping everything in order can be difficult. Therefore, it is very important to track your cryptocurrency investment portfolio.
A cryptocurrency portfolio tracker is essential.
A cryptocurrency portfolio tracker can be an app or website that allows users to monitor the price changes of the different assets they own. In this way, you can manage your cryptocurrency investment portfolio correctly and more effectively. Cryptocurrency portfolio trackers are generally integrated with multiple wallets and online trading platforms. You can consider the following popular crypto wallet trackers:
Don’t be carried away with new investments.
Controlling emotions is a key factor. Investors’ extreme fear or greed can make the crypto market extremely vulnerable to severe ups and downs. In addition, blockchain is a distributed ledger technology that powers the encryption ecosystem and is relatively new. In other words, there are many developments in this field. However, don’t let the hype surrounding this technology control your emotions. With your crypto investment, always try to be more realistic and evaluate projects that solve major problems. When there is extreme fear or greed in the cryptocurrency market, investors should remain calm, which often leads to extreme panic and uncertainty.
Another reason many traders fail to properly manage their cryptocurrency portfolios is FOMO (fear of missing something), which is triggered by their emotional overload. Peer pressure is another reason many newcomers tend to make investment decisions hastily and purchase assets at high prices. As we said in the previous blog post, price adjustments always occur as the value of assets rises. As an investor, making a plan and sticking to it can be an excellent strategy. In fact, successful investors are known for their ability to control emotions in terms of investment plans and goals.
Technical analysis can help investors think more logically about their investment decisions and train their trading strategies more.
Plan your exit, if need be.
Think about your exit plan first. All good things invariably end. This means that nothing is eternal, all things and situations are temporary. Considering an exit plan before entering the cryptocurrency market can be a fascinating portfolio management strategy. Successfully executing trades and making profits makes investors feel good, happy, and motivated by their decisions; however, the absence of an exit strategy usually results in investors holding positions for a long time, even if it means incurring losses.
Well, a situation like this may not be conducive to your crypto portfolio management, or it may hinder your long-term investment strategy. Successful investors prepare their exit strategy at any given step, even before entering the market. Conclusion Managing your crypto investment portfolio does not have to be complicated. However, it is important to have a rock-solid plan, how much and assets you want to invest. Knowing your thought process will help you create profits and prevent you from making hasty decisions.
Balancing and diversifying your crypto investment portfolio is another excellent strategy for considering long-term growth and sustainability. You can use the encrypted portfolio tracker to monitor the daily price, trading volume, and market value of the assets in your portfolio. If you don’t want to invest all your savings at once, you can choose the average cost and continue to build your investment portfolio. However, please do your own research on the cryptocurrency coins and tokens you want to invest in.
Have you invested in this booming market yet?
~ Deepansh Pratap