How to Create a Well-Balanced Crypto Portfolio

How to Create a Well-Balanced Crypto Portfolio
  • Crypto Guru
    July 22, 2023, 10:00

In the early days of the cryptocurrency industry, most investors invested exclusively in Bitcoin. This position was due to the fact that new coins most often did not have a fundamental value.

In 2022, well-known tokens usually have some kind of blockchain project behind them. Accordingly, their acquisition is comparable to investing in these startups. In 2022, a well-balanced portfolio of cryptocurrencies contains at least several varieties of altcoins.

What a balanced investment portfolio means

At the same time, it is important to understand that a crypto portfolio is not just a set of coins and tokens. This is a certain balance between risks and return on investment. For example, if you just bought ETH then this is not a crypto portfolio. You just purchased one asset and did not diversify investment risks in any way. If the ether rises, you will earn. But if it falls and other assets of the crypto market rise, then you will lose money and miss out on potential profits.

Building a well-balanced portfolio is not easy. It is necessary to take into account all the risks, determine the desired level of profitability and choose investment strategies.

At the same time, you cannot simply copy the portfolio of a successful investor or trader. After all, all players in the crypto market have different goals, risk tolerance and investment horizon. It is better for beginners to compile a crypto portfolio on their own and, as they gain new knowledge, analyze the market situation and form new goals, gradually improve it: reduce risks and achieve greater profitability.

7 ways to diversify your crypto portfolio

In common crypto portfolio management is a difficult task, but you can manage to deal with it if to take into consideration a few simple tips.

Step 1: set the investment amount

Decide how much money you are willing to invest. Remember the old axiom: Invest only the money you can afford to lose.

Regular investments in cryptocurrencies increase portfolio returns and reduce risks. Buying coins every month is more profitable and more reliable than buying once. With this approach, you will have a better chance of buying back the drawdown and investing in assets at the most favorable prices.

At the same time, you should not invest exclusively in cryptocurrencies. How much money to hold in cryptocurrencies depends on your willingness to take risks and faith in digital assets. If you believe in the prospects of certain cryptocurrencies, then you can keep from 5–10% to 20–30% of your savings in them. For example, investor Paul Tudor Jones advises to keep so much in BTC wallet.

Step 2: Determine the purpose and duration of the investment

Decide for yourself what exactly you expect from investing in cryptocurrencies. You can set a specific amount that you want to receive from them or limit the investment period. For example, goals might include: earn 10% in a year, double your deposit, save up for a car until the end of the year, or save for retirement.

Do not invest in cryptocurrency money that you will need in the coming months or a year. The situation on the crypto market is very volatile. At any moment, the market can suddenly sink, and then recover for years. So, it took about 2.5 years for Bitcoin to overcome the high of 2017 of almost $20,000.

At the same time, set realistic goals. To earn the proverbial million dollars from a small amount, you have to be a god-like trader or a fantastic lucky one. If you live on an average salary, it is more realistic to set a goal of several tens of percent per annum.

Step 3: Identify risks and choose an investment strategy

Any crypto portfolio is waiting for strong drawdowns – by 30%, 50% and even 90%. You must decide for yourself how ready you are for this. Depending on your risk tolerance, there are three main strategies for investing in cryptocurrencies.

Passive strategy – HODL. Just buy an asset and hold it despite the drawdowns. This is the easiest choice for a novice investor, but at the same time one of the most profitable strategies in the long run (at least in historical retrospect with bitcoin and the largest cryptocurrencies by capitalization).

Step 4: Select assets to invest

The most important step in compiling a crypto portfolio is to determine which digital assets and in what ratio you will buy. Specific assets depend on your goals, investment timing and risk appetite.

The best crypto portfolio can be created if to combine all three investment strategies in your portfolio. Then some of the coins can be kept in the long term, and some can be regularly rebalanced. You can divide the portfolio into three components: the most reliable coins are the top 10 coins by market capitalization, the medium-risk ones are the top 30 coins, and the high-risk assets are the top 100 coins and beyond.

Step 5: Rebalancing the Crypto Portfolio

Even the most balanced crypto portfolio will eventually deviate from the chosen risk/reward ratio. Some coins will grow stronger than others, some will sink. As a result, the distribution of assets in the portfolio will change. For example, at the beginning, the share of the high-risk coin in the portfolio was only 5%. After a rapid rally, it increased to 50%. The risk has increased 10 times. Now, if the coin falls by half, you will lose not 2.5% of your assets, but 25%.

To avoid this, the portfolio must be periodically rebalanced – return the original distribution of shares or change it in accordance with the new market situation. It is also important to get rid of projects that are losing popularity and unprofitable investments in time. Rebalancing helps not to miss profits: if an asset is rapidly rising in price, it is reasonable to increase its share in the portfolio.

Step 6: where to buy and how to store cryptocurrencies

It is easiest for a beginner to buy digital assets on large trusted centralized exchanges, for example, Binance, Exmo, Huobi, Bithumb, OKEx, Bitmex, Bittrex, There are special crypto portfolio apps for users.

When investing up to several months or a year, all assets can be stored directly on the exchange. If you are a hodler, it will be safer to withdraw coins to desktop or hardware wallets.

Step 7: Avoid Mistakes

Beginners often make decisions on emotions, make typical mistakes, lose money and become disillusioned with cryptocurrencies.

Neglect of the basic rules of crypto-security – scammers are on the alert, so you should always be on your guard. It doesn’t matter what question do you have, connected with exchange cryptocurrency or investments, you should always make research before making any actions.

Examples of well-balanced portfolios

Before you start the creation of your own, you can pay attention to some good examples of portfolios. After this you can choose variant, appropriate for yourself.

Examples of well-balanced portfolios

There are many ways you can construct a well-balanced portfolio – international stocks, real estate, mutual funds, government bonds, cryptocurrency.

An example of portfolio crypto depending on the degree of risk:

  1. Conservative. Such type of portfolio has no more than 10 coins. There are low returns and low risks. As for the risk ratio, it is defined as 75%/25%/0% (HA/CA/BA).
  2. Moderate (balanced). Such portfolio is the most common, and it’s characterized with a total number of coins is up to 20. As for the asset ratio, it is 25%/50%/25%.
  3. High risk. The bet here is done on coins that can bring great profits. As for the other features, there are also high risks. The asset ratio is 25%/25%/50%.

Make sure to visit and get a lot of useful information on the topic.  You should install crypto portfolio app for easier use.

Take a Long-Term View

If the investor wants to create a cryptocurrency portfolio, he should distribute and use the investments in cryptocurrency at maximum efficiency. The investor can achieve a reduction in the risks associated with the high volatility of digital assets and the maximum growth of dividends if he is using a balanced investment portfolio in cryptocurrencies .

Investing in cryptocurrencies is a good investment option. It can bring great returns to the investors.But this type of investments is really risky. The crypto market has been and remains volatile, and changes in cryptocurrency rates are quite difficult to predict. It is better for an investor to rely on their own research, considering all factors, before choosing a digital asset to invest in.