Managing Risks with a Diversified Crypto Portfolio

Managing Risks with a Diversified Crypto Portfolio

Every experienced investor knows that it’s wise to diversify your holdings in any market. Diversification is particularly important for people who collect and invest in cryptocurrency because these markets can be volatile and unpredictable.

However, becoming truly diversified in crypto investing is a bit more complicated than diversifying in other industries because simply using multiple kinds of coins or exchanges isn’t the only step you can take. With that said, here’s a quick guide to managing risks within a diversified crypto portfolio.

Spread Wealth Across the Top Cryptocurrencies

The first approach you should consider to keep your risk minimal when investing in cryptocurrency is to store your money in the top five cryptocurrencies. In terms of market cap, the biggest crypto coins are currently Bitcoin, Ethereum, XRP, Litecoin, and Tether. Of course, aside from market share, you should also consider the coin’s current value. From that standpoint, the most valuable cryptocurrencies behind Bitcoin are Ethereum, Litecoin, Monero, Dash, and Maker. Keep in mind that coin prices fluctuate frequently and can vary from day to day, so be sure to stay on top of current prices with a live tracker – you can check the prices here and find stats related to overall market cap and changes that have occurred over the past 24 hours.

Use the Right Crypto Exchanges

As you may know, cryptocurrency exchanges are simply websites that are used as platforms for buying, selling, and trading cryptocurrency. Some of the top crypto exchanges are Bitbuy.ca, Coinbase, ChangeNOW, XTB, Kraken, and ShapeShift. There are literally dozens of these exchanges out right now, and not all of them are reputable or fair in their dealings, so it’s important to be careful about which one you use. With so many new exchanges popping up, it can be difficult to settle on just one. Be sure to thoroughly examine terms and conditions and read reviews before signing up for an exchange. And remember, diversification of exchanges is arguably just as important as diversification of your assets.  as using one or two exchanges only increases your risk profile.

Trade Future Contracts and Other Derivatives

A crypto portfolio that consists only of coins isn’t very diversified at all, as there are many derivative investment vehicles that can be used to manage risk even further. By taking advantage of futures contracts, managed funds, and other crypto-related investments, you can create the most diverse portfolio possible while also profiting from the market as a whole instead of just Bitcoin or a single segment of it.

Likewise, consider investing in some newer altcoins that are appearing, as getting in super early is the best way to ensure a lucrative outcome when investing in burgeoning cryptocurrencies. Still, don’t lose sight of the fact that Bitcoin more than doubled in value this year, so give BTC the respect it deserves by holding most of your wealth in that form.

Diversification is Always Wise

If you know anything about investing or best business practices, then you know the importance of diversification. Keeping “all of your eggs in one basket” exposes you to the risk of losing everything in the event of a terrible mishap. Plus, with a more well-rounded knowledge of the crypto market, you’ll be informed enough to make more accurate and effective trading and buying decisions.

By storing your wealth in a variety of forms and spreading your cryptocurrency portfolio out across multiple markets and exchanges, you’re essentially hedging your bets to ensure that the downturn of a single market or investment won’t result in a major loss that you’ll be unable to cope with or recover from. By heeding the tips given above, you can put yourself in an ideal position to absorb negative impacts without facing severe consequences.