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How to Balance Your Crypto Portfolio?

First, let’s talk about a balanced portfolio, when you have a portfolio whether it’s the traditional one or cryptocurrency portfolio you should balance it to reduce the risk and you can do it by the strategy you choose and variation of your assets. The easiest answer to ‘how to balance your crypto portfolio?’ is diversifying your investment among different cryptocurrencies.

To have a better trading and investment experience you can record your transactions on spreadsheets or you can use a third-party portfolio tracker which can be linked to your wallets and cryptocurrency exchanges.

 

Introduction

To become a crypto investor, you need to buy your first coin. Being a crypto investor is easy. You can hold or trade your cryptos. But you should have a strategy for your trading and also for your assets. Some people hold only their bitcoin or Ethereum and some others are interested in altcoins. There are a few ways to balance your portfolio based on your risk tolerance.

 

What is a crypto portfolio?

A portfolio in the crypto world means a collection of cryptocurrencies including altcoins and other crypto financial products that someone owns. A Crypto portfolio is similar to a traditional portfolio except you have one asset class in the crypto portfolio. As it was mentioned above you can track your portfolio manually or you can use trackers which can be connected to your wallet and cryptocurrency exchange. These trackers are efficient for day traders but also they can be useful for long-term investors and Holders.

 

Allocation and diversification

Allocation and diversification are two common strategies in investment and portfolio. The first on, asset allocation refers to different asset allocation and means investing in different asset classes for example stocks, bonds, and cash. And diversification means distributing your investment funds across different assets or sectors. For example, you can invest in different industries such as technology, energy, etc.

Cryptocurrency is a single asset, for this asset you can diversify your portfolio by buying different products of crypto such as coins and tokens. For example, you can divide your portfolio into 20% NFTs, 40% altcoins, 30% bitcoins.

 

Concentrated or diversified

It is recommended to have a diversified crypto portfolio. Although diversifying is recommended, still there are pros and cons to spreading your capital around different assets.

Having a diversified portfolio reduces risk and volatility, one asset can make up for the loss of another by making a profit and keeping your position stable. Not every investment will win, but with the right allocation and diversification, you are likely to make a profit in the long run.

You need to do more research and spend more time when you have a diversified portfolio. You must know what you are buying and when the portfolio is large you cannot trace everything well. In the end, the decision to diversify or not is yours, but some diversification is always needed.

 

Types of cryptocurrency

Bitcoin is not the only crypto however it is the most known one. A well-balanced portfolio consists of different coins to reduce the overall risk. Some cryptocurrencies are mentioned below.

 

Payments coins

It is hard to find payment coins these days but in the past, most of the projects were a way to transfer value. Bitcoin is the most known but there are many others such as Ripple, Bitcoin Cash, and Litecoin.

 

Stable coins

A stable coin attempts to track an underlying asset such as a fiat currency or precious metal. For example, BUSD relies on the U.S. dollar with reserves set at a 1:1 ratio. The stable coins don’t provide large returns but they live up to their name and provide stability.

 

Security coins

These types of cryptocurrencies, like traditional securities, can have different backings. They are in fact securities that have been digitized and are released in the blockchain environment.

 

Utility tokens

These coins are the main tokens for paying for a product or service, for example, BNB and ETH are both useful tokens because they can be used to pay for transactions in decentralized software.

 

Governance tokens

With these tokens, you get the right to vote on a project and even a share of its revenue. Most likely you can find these tokens on decentralized platforms like UniSwap, PancakeSwap, or SushiSwap.

 

Financial crypto products

In addition to various currencies, your portfolio assets may include other cryptocurrency products, such as buying shares in ETFs or investing in various blockchains and decentralized software.

 

Bottom line

Many cryptocurrency markets depend on the uptrend in bitcoin, but that does not mean you should not balance your portfolio. Investing in different parts of the cryptocurrency can help you lose less when bitcoin is in decline, so diversification is always an important point in setting up your portfolio.

 

 

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