Cryptocurrency diversification in the portfolio: what, how and why?

0 23


Diversify crypto portfolio: what, how and when? In previous materials, we figured out how to easily and quickly create a crypto portfolio and what factors should be paid attention to when creating it. In addition, we focused your attention on exactly what types of coins should be contained in your portfolio. Today we will consider this issue in more detail.

Does the distribution of cryptocurrencies in the portfolio really play an important role?

Yes, if you want to make good money. Your crypto portfolio must contain at least several different cryptocurrencies. Your income will be largely determined by the proportion of coins in your portfolio.

So how you can diversify crypto portfolio? All existing cryptocurrencies can be divided into three groups:

  • Low risk assets(LR).This group includes the first 10 coins by market capitalization.
  • Mid-risk assets(MR). This includes the TOP-30 coins according to the rating of coinmarketcap.com.
  • High Risk Assets(HR). All other coins.

According to this classification, there are three types of crypto portfolios. The key factor is the degree of risk the investor goes to get more profit.

  • Conservative portfolio. It contains no more than 10 coins. Weight: 75% LR / 25% MR / 0% HR. This type of portfolio is ideal for beginners. Coins with a high market capitalization are minimally exposed to risk, so the probability of a quick loss of funds is quite low. On the other hand, you will not earn much on them.
  • Balanced portfolio. The number of coins is no more than 20. Weight: 25% LR / 50% MR / 25% HR. The most common type of portfolio. Requires investment experience. Naturally, it brings much more dividends than a conservative portfolio.
  • High risk portfolio. Suitable for professional investors. Weight: 25% LR/ 25% MR / 50% HR. Investors are betting on risky assets. Any coins can be included here. For example, digital assets acquired during an ICO / IEO. Many of them, of course, fail. But, for example, one in ten assets that shows good growth will well offset the costs of the remaining coins. Similarly, by the way, business angels act.

In addition to this, I would like to give a couple of useful tips from an experienced investor. The share of bitcoin in your portfolio should be from 25% to 50%. The coin is stable, in the last month shows steady growth, so there is no reason not to give it the maximum weight in your portfolio.

Picture 1. The graph of changes in the value of bitcoin for the entire period of existence

It will not be superfluous to diversify at a high level. This implies the creation of several cryptocurrency portfolios stored in different places (for example, in a multicurrency wallet and on the exchange).

Alternatively, create a beta-neutral portfolio. Half of the assets in it correlate with Bitcoin, that is, with an increase in the value of digital gold, such assets also add to the price. The remaining coins should grow when Bitcoin falls. However, it is important here to choose the right assets and make a competent rebalancing. By the way, we will tell you about it in our next article.

This article is not a recommendation for investment or investment in cryptocurrency, as well as perceived as investment advice. Be careful, because investing in cryptocurrencies is very risky and you need to consult with your financial advisor. Past earnings do not guarantee future earnings.

Holderlab.io is a service for automated crypto portfolio management with automatic rebalancing of assets (threshold or periodic), searching for efficient frontier and analysing assets using a correlation matrix and other crypto investments tools.

You might also like

Pin It on Pinterest

Share This

Share this post with your friends!

WhatsApp chat