The crypto market consists of thousands of crypto coins and other digital assets you can invest in at any time. Many investors focus on buying or trading just one coin, not considering other cryptocurrencies as well. That means that their crypto portfolio performance is strictly linked to the sentiment, community, and development of that one particular project only. Having just one token in your cryptocurrency portfolio brings a higher level of risk exposure than investing in multiple assets.
Once you put your money into different crypto assets, you have to be able to track them and know how they are performing. That's where crypto portfolio management comes in.
Your crypto investment can be worth a fortune one moment and almost nothing the next. There are risks you can't control, like the volatility of the crypto market that can turn a bull market into a bear market and vice-versa, but having in place a well-thought crypto portfolio management strategy can help you avoid many headaches. Knowing how to build your cryptocurrency portfolio aids in preserving all your money and gives you the chance to grow your expected returns.
Today we're going to learn how you can manage your crypto portfolio in the most efficient way possible.
What is a crypto portfolio?
In finance, a portfolio is the sum of financial assets someone has. It can contain stocks, bonds, fiat currencies, and any other commodities or traditional assets.
When it comes to crypto investments, a crypto portfolio contains all your assets, like the different cryptocurrencies you might hold and trade on any trading platforms. Beginner investors have the tendency to buy and hold one significant token, like Bitcoin, ignoring other cryptocurrency projects. However, there are over 10.000 cryptocurrencies available in the market. While you can't buy them all, doing some research and investing in a select few is one of the best trading strategies you can adopt. As a fun fact, did you know that the top five largest valued cryptocurrencies sum up 76% of all cryptocurrency value?
With the help of a crypto portfolio tracker, you can easily control your digital assets and track any changes in your account balance over determined periods, like daily, weekly, monthly, or even yearly. You can think of it as an inventory of your many assets that is extremely useful in a volatile market like the crypto space.
Types of cryptocurrency traders
In the crypto space, there are several types of traders and investors:
Swing traders: A swing trader makes investments in crypto and holds the asset for a few days or a couple of months, making a profit from market fluctuations.
Position traders: They are similar to swing traders, but they build a balanced crypto portfolio with assets they keep for longer periods of time, usually months on end. They make money out of major market fluctuations.
Day traders: Day trading is a trading strategy that involves making investments and selling those assets within the same day. This type of investor makes profits from small price fluctuations.
Scalp traders: Scalp trading is the fastest form of trading, and it requires an investor to put his capital in a crypto asset and sell it in a matter of minutes. Traders can make profit from the slightest price fluctuations in the market.
Asset allocation & diversification
Before creating a crypto investment portfolio, you should get acquainted with the main concepts: asset allocation and diversification. The first concept, asset allocation, refers to investing in different asset classes (cryptocurrencies, stocks, bonds, money, precious metals, etc.).
Diversification relates to how you distribute your funds across several assets or sectors. For example, you want to diversify your stock holdings. You can invest in different industries such as healthcare, technology, agriculture, etc.
Cryptocurrencies are considered single-class assets. However, you can diversify your crypto portfolio by putting your money into several products, coins, or tokens with different goals and use cases. You can build your portfolio with bitcoins, altcoins, stablecoins, and NFTs.
The importance of a diversified portfolio
If you are at the beginning of your journey in the crypto world, you might believe holding just one type of cryptocurrency is enough. However, experienced crypto traders will argue that having a balanced portfolio is paramount in a long-term investment strategy.
Portfolio management secret: Balance with diversification
The best way to balance your crypto portfolio is by means of diversification. Crypto investors that diversify their portfolios don't invest just in major coins; they combine a handful of stablecoins with altcoins, or coins linked to smart contracts platforms, ensuring a higher risk tolerance against highly volatile currencies.
Holding on only to Bitcoin, for example, makes your investment prone to extreme ups and downs due to this cryptocurrency's high volatility at times. Any investor with experience in blockchain technology investment strategy will tell you that it's not desirable to pin your financial future and the returns of your crypto token investment to the performance of only one digital asset.
Pick an outperformer
Another benefit of having a balanced crypto portfolio is that it gives you more chances of picking a coin that could turn out to be an outperformer. All the existing and emerging crypto projects have one thing in common: they are trying to solve real-world problems with cryptocurrency. Although Bitcoin is the oldest crypto coin in existence and has the largest market cap, newer coins are trying to improve the technology and increase in value over time. Investing in crypto implies taking a chance on several cryptocurrency holdings, out of which some might end up outperforming Bitcoin in the future.
Rebalancing your crypto portfolio
If your portfolio consists of several cryptocurrency coins, you have the possibility of rebalancing it when you sense that it might become overweight in certain coins. You can simply use the gains from the asset that brings more capital to invest again in the other cryptocurrencies from your collection.
Let's do a mental exercise as an example: you currently have three different assets in your crypto portfolio: coin A ( 50%), coin B ( 25%), and coin C ( 25%). You sell 5% of coins B and C in order to acquire more of coin A, resulting in a 60% total value of this token in your portfolio. After that, coin A skyrockets, and its value increases exponentially. Hence, you decide to sell a portion of it and rebuy coins B and C to rebalance your collection to the initial 50-25-25 split. By successfully executing this rebalancing, you've used the gains of your outperforming crypto to fund the rest of your cryptocurrency portfolio. Of course, you can repeat this process again in the future.
Strategies for portfolio diversification
If you need a little bit of help with diversification, here are some strategies you can apply to your crypto portfolio:
- Choose crypto coins with different use cases. If you choose to invest in Ethereum, you're broadening your portfolio with coins related to the second largest crypto network on the market that features smart contracts functionality. Such an investment opens the doors for you to a blockchain network where decentralized applications, or dApps, can be built. Another investment can be in stablecoins that have consistent value due to the fact they are pegged to fiat currency or any other underlying asset. Stablecoins help balance out the crypto market's volatility.
- Invest in several blockchains. The most popular blockchain in the crypto world is, without any doubt, Bitcoin. But you could also invest in Ethereum, Cardano (focused on security, efficiency, and scalability), or EOS (specialized in web services).
- Diversify by market cap. A cryptocurrency with a larger market cap may be more stable and have more robust fundamentals, but other crypto tokens with a smaller market cap might have strong growth potential.
- Choose crypto projects from different locations. Don't limit your investments to only one geographical area. Choosing projects from around the world gives you access to a wider variety of crypto businesses and innovative technologies.
- Invest in several industries. Crypto opportunities spread across multiple industries. Decentralized finance, or DeFi, allows people to make transactions through peer-to-peer blockchain networks without a third party like a bank. Crypto's use in the gaming industry has led to the emergence of the play-to-earn model, where players can earn crypto rewards and NFTs through their gameplay.
- Go for investments in multiple asset classes. You can invest in utility tokens that give users the right to use a product on a certain platform. You can opt for non-fungible tokens representing unique digital ownership of many things, such as real estate, digital art, collectibles, and even individual identities. Spreading your money over numerous asset classes can help minimize the volatility risk.
- Diversify by risk level. Depending on your risk tolerance, you can adjust your allocation across a select few or many different crypto investments. You can combine riskier altcoins with stablecoins for better portfolio risk management.
Ways to properly build your crypto portfolio
Don't dive into a crypto investment head first. Take the time to analyze the market conditions beforehand and do your own research besides what others advise you. Investment decisions should always be taken carefully, as any hasty or emotional choice could lead to you potentially losing money.
When it comes to portfolio management, here are some things to always keep in mind:
Dollar-cost averaging (DCA)
Your investment and trading strategies should aim toward the long-haul, not short-term gains. Dollar-cost averaging is a good strategy that involves investing smaller amounts of your cash flow at fixed times instead of all at once. Making periodic investments can reduce the impact of volatility on your overall portfolio, as you won't get influenced by peer pressure to buy or sell your coins, regardless of the bull or bear market.
Let's suppose you have to invest $1000 in Bitcoin. Instead of investing it all at once, you can divide your money into five equal investments of $200 and buy Bitcoin from multiple exchanges on fixed dates over a period of five months. The dollar-cost average strategy works best when the market is bearish. Using this crypto portfolio management approach might result in you spending less than if you would invest upfront all your money during a bullish market.
Crypto portfolio trackers
If you have several wallets where you keep all your digital assets, don't fret! Luckily there are quite a few cryptocurrency portfolio tracker websites or apps that you can use to monitor your tokens and stay organized. These trackers integrate with most wallets or even with some exchange platforms, so it will be easy for you to check the price movements of your coins.
Keep calm & invest on
Making significant decisions out of excitement or fear is always a recipe for disaster. Both FOMO ( fear of missing out) and FUD ( fear, uncertainty & doubt) can be real issues when allowed to drive one's investment choices. Sometimes traders fail to manage their crypto portfolio successfully because they react based on emotions instead of sticking to their plan. A good portfolio manager can think logically regardless of what's happening in the market and understands that a natural price correction always follows after a surge in asset value.
Prepare an exit strategy
All good things come to an end, whether we like it or not. Most investors with a crypto portfolio management strategy in place also have a clear exit plan. That means that even before entering a trade, you should know how long you are willing to trade your assets and when you want to stop. Figuring this out early on can help maintain your portfolio value, as you're less likely to close out for a loss.
Choosing a crypto portfolio tracker
As we've mentioned before, if you have more than three coins that you are actively trading in your portfolio, you should link all your wallets and exchanges to a crypto tracker.
Most crypto portfolio trackers have more or less the same features, so you might not know what to look for when selecting the appropriate tracker for you. Follow our guidelines, and you won't risk choosing the wrong one:
- Safety: Since crypto portfolio trackers link with crypto exchange platforms and the user's bank account, security is of the essence. Choose a tracker that emphasizes safety and security so that you won't run the risk of unpleasant hacking surprises.
- Easy-to-use interface: A good crypto portfolio tracker should have a simple, clean and clear layout. You should be able to see the total value of your crypto investments on the homepage to track any changes effortlessly.
- Available coins and multiple exchanges: The risk of not being able to connect to the exchange platforms you use is relatively low, but it's better to double-check the connectivity of the tracker with all the crypto coins and platforms you are using before you sign up. Better to be safe than sorry!
Best Crypto Portfolio Management Software
The decentralized nature of cryptocurrencies makes it certain that you'll have to juggle multiple wallets, exchange platforms, and coins. To keep the risk level at a minimum, research a bit about portfolio management software and apps.
Some of the most popular cryptocurrency portfolio trackers you can take into consideration are:
- CoinMarketCap portfolio tracker
Should you get a good portfolio manager?
You might be wondering if searching for a portfolio manager is the best solution for your crypto portfolio management.
You can learn how to manage a crypto portfolio on your own easily unless you're a professional trader managing an extensive portfolio. In this case, a good portfolio manager would be the perfect fit for you. You should look for the following:
Multi venue connectivity
Best execution routing
Book aggregation across exchanges and dealers
Real-time and historical reporting:
Real-time and historical market data
Trade aggregation across several exchanges and counterparts
Performance and exposure analysis
Futures and funding rates
As you can see, building a balanced and diversified portfolio is not rocket science, but it's not a piece of cake either. As long as you make a clear plan and respect it every step of the way, you'll be able to track and monitor your crypto assets without a glitch.
You have many tools and strategies at your disposal to manage your crypto portfolio, like dollar-cost averaging and crypto portfolio trackers, as well as many exciting cryptocurrency ventures to choose from.
Many investors use crypto portfolio management to stay ahead of the game and mitigate their losses while making risk-adjusted returns. Take your time when making investment decisions, and you won't risk losing your head and investing emotionally in one coin, instead of rationally.
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