Are you a cryptocurrency investor with a significant portion of Bitcoin in your portfolio? Or is your portfolio weighing too much towards Dogecoin, Ethereum, or any other particular cryptocurrency? Generally, beginners try to play safe by not diversifying their portfolio and investing in only one or two cryptocurrencies. If this sounds very much like you, it’s time you stop and reconsider your investment strategy. Keeping an undiversified portfolio is highly risky and can make you prone to massive losses.
If you are an absolute cryptocurrency enthusiast who is still learning the fundamentals like what is an investment portfolio, which cryptocurrencies are ideal for your portfolio, etc., this guide can help you shape your investment journey. It features all possible ways to diversify your portfolio, allowing you to earn maximum returns. So if you’re ready to begin your cryptocurrency diversification process, read along until the very end.
Ways to Diversify Your Portfolio
As a crypto investor, you always have the option to diversify your portfolio across different industries, coin types, asset classes, and investment vehicles. Let’s learn more about these categories shared below.
Diversification by Coins & Tokens
A common and most popular way to diversify your portfolio is by picking the best coins and tokens under varied categories. Fortunately, the market offers plenty of crypto tokens, making it easier for investors to choose the ideal options. Payment tokens, governance tokens, utility tokens, security tokens, gaming tokens, basic attention tokens, and non-fungible tokens are some options you can consider. These are broad categories, and each class has hundreds of cryptocurrencies. You just have to research about each and pick the most promising options under each category. You can read a reliable and trusted crypto industry blog to learn more about these tokens.
Diversification by Industry Focus
Besides diversifying your portfolio based on coins and tokens type, another excellent method is diversification by industry focus. Blockchain technology has disrupted almost all industries, so finding a cryptocurrency designed exclusively for a particular sector is not challenging. You can consider expanding your cryptocurrency portfolio into industries like the supply chain, entertainment, private equity, healthcare, climate change, real estate, transportation, and more.
If you want to currently diversify your investments across industries, consider picking public companies pursuing blockchain projects. Following this tip will enable investors to focus only on publicly traded companies that integrate a meaningful blockchain strategy. But if you don’t want to limit your portfolio to publicly traded companies, you can pick the best-performing cryptocurrencies in particular industries.
Diversification by Investment Vehicle
Some investors perceive portfolio security as a potential area of risk. If this sounds like you, diversifying investments based on account types and investment vehicles will be an excellent choice. For example, investors can diversify their portfolios by investing and securing their cryptocurrencies in different digital wallets, cryptocurrency IRAs, decentralized financial products, and taxable brokerage accounts. It will ensure all your owned cryptocurrencies are securely stored.
Diversification by Asset Class
Although this point is not exclusively geared towards people investing in cryptocurrencies, it is an excellent diversification choice for investors in general. It recommends investors to have a healthy mix of real estate, bonds, stocks, cryptocurrencies, and other asset classes in their portfolio. If you are a beginner, we suggest consulting a professional financial planner. It will give you personalized and right guidance worth following for the best returns.
Why Diversify Your Cryptocurrency Portfolio?
If you diversify your cryptocurrency portfolio, you can enjoy the following benefits:
- Lower Price Volatility
Diversifying crypto investments can help stabilize your portfolio if you have diversified based on the right asset classes, especially during periods of market turbulence.
- Opportunity to Learn About the Cryptocurrency Economy
Investors willing to learn more about the different exciting cryptocurrency projects would enjoy diversifying their portfolios. It will boost the possibilities of getting better returns while enhancing your knowledge about the cryptocurrency world.
- Option to Rebalance Crypto Holdings
If only one of your cryptocurrency investments is performing well, the entire portfolio might be weighed towards it. Diversifying your portfolio strategically can help you earn better returns from more options instead of just one.
Diversifying Cryptocurrency Portfolio Made Easy
The concept of cryptocurrency portfolio diversification might sound complicated, but it isn’t. It is all about having the correct knowledge and understanding of where and how to invest. If you have been looking for ways to diversify your portfolio, consider the options discussed above. However, we would certainly recommend doing your own research to align the diversification with your goals for the best returns.