An important consideration that affects future investment returns is how the portfolio was assembled. In this article, we tell you what a cryptoportfolio is and how to assemble it competently.
ContentWhat is a cryptocurrency portfolio
Why you need a crypto portfolio
How to collect and track a crypto portfolio
Where you can store assets
What to assemble a crypto portfolio from
How to choose assets wisely
What is a cryptocurrency portfolio
A cryptocurrency portfolio is a combination of different cryptocurrencies in the right ratio. A portfolio can contain altcoins, tokens, stabelcoins and many other cryptocurrency assets owned by an investor or crypto trader.
Why you need a crypto portfolio
A cryptoportfolio helps you maximize your investment returns and diversify your risk, that is, allocate your cash into assets that are not linked to each other. This avoids losses when one of the assets drops in value, as well as increasing the resilience of investments to spikes in overall value.
Both large investors and beginners will always benefit from this tool, even with small investments. For example, you can invest in dozens of different cryptocurrencies with a low value, as they can generate a large income in the long run.
How to assemble and track a crypto portfolio
One of the most important rules when building a cryptocurrency portfolio is asset diversity. Investing in just one coin is dangerous, as there is a risk of it collapsing and you could lose all your money. If you invest into several coins, different in purpose and way of use, then with one asset falling by 15% and others rising by 10%, the risks will not be so palpable.
You can track your portfolio in two ways: either use a spreadsheet to track it manually or use off-the-shelf tools, such as trackers, that are useful for both investors and traders.
Where you can store assets
Crypto exchanges can create, diversify and store your crypto assets. Purchased cryptocurrencies are immediately allocated and lined up in separate groups. This is quite a convenient way, but not the most secure. It's all about private keys - almost all exchanges store them on their servers, and hence, they own them too. In addition, if they go bankrupt, close or get hacked, it will be almost impossible to withdraw the assets.
Keeping cryptocurrency safe is possible with third-party wallets: a hardware wallet and a decentralized wallet. A hardware ("cold") wallet stores private keys on a special device that has no permanent access to the Internet. A decentralized (non-castodial) wallet keeps full access to your private keys and your personal account. This means that no one can in any way manage your funds. You should keep this in mind, as you alone will be responsible for keeping your keys and the mnemonic phrase needed to restore your wallet.
What to assemble a cryptoportfolio from
For a cryptoportfolio to work for you, you should understand what coins even exist.
Payment System Coins.
These are cryptocurrencies that were originally created only as a payment system. They were developed at the very beginning of the market development, that is, before the etherium and smart contracts, so they are also called the first generation of cryptocurrencies. These include:
- Ripple (XRP);
- Bitcoin Cash (BCH);
- Litecoin (LTC);
- Bitcoin (BTC).
These are coins that are tied to the value of a fiat currency (dollar or euro) or a physical asset (gold). Stablecoin have all the qualities of a cryptocurrency, except for one thing: the lack of volatility. For example, the BUSD coin is pegged to the U.S. dollar and is not subject to sharp price fluctuations.
Security tokens are similar to traditional securities, the difference being that the former are digitized and stored in a blockchain. Their owners have access to, for example, project bonds, voting rights, dividends, etc. Such tokens are under the jurisdiction of local regulators. In order to enter the market, they must go through special legal procedures.
Utility tokens, or utility tokens, unlike the previous ones, provide access to a company's service or product. For example, Ethereum (ETH) can be used as a transaction fee for DApps. These tokens are issued at an ICO - Initial Coin Offering - in order to raise funds from investors. The value of utility tokens is determined solely by its effectiveness.
Holders of management tokens have the right to vote in the project that issued the tokens. In addition, there is an opportunity to receive a share of the project's profits. The more successful the project, the more valuable the management tokens. You can buy them on various DeFi-platforms, such as Uniswap.
How to choose the right assets
Before investing in a particular asset, it is advisable to conduct an analysis. There are several factors worth paying attention to:
- The value of the coin;
- The capitalization of the coin;
- The level of its popularity;
- The volatility rate;
- Whether there are prospects.
When choosing, you can focus on the top coins from the cryptocurrency rankings. Investing in them is considered relatively safe due to a more stable rate, high liquidity and prospects for further growth.
Stablecoins are useful to keep in a crypto portfolio, as they provide stability due to the lack of super volatility, but it is not always possible to get some high income. On the other hand, there are promising new projects. The risks here are an order of magnitude higher, but the yield can run into thousands of percent, of course, if the project is successful.
It is worth bearing in mind that the return on investment will directly depend on the moment at which you purchased the cryptocurrency. For example, if an investor decided to buy a coin when it broke its historical maximum value (ATH), it does not guarantee further growth. The exchange rate can fall and the investor will have to wait until the investment starts to pay off.
From time to time, crypto portfolios need to be "cleaned up" by getting rid of assets that have not passed the strength test - they either leave the market or collapse. Their place can be taken by new profitable cryptocurrencies, so investors need to follow the news and trends of the crypto industry.
There are different strategy options, differing in terms of the amount of investment, risk level and term of investment. Preference should be given to the one that best meets your expectations. Here are two simple examples of how you can allocate assets in your crypto portfolio.
1. Example of low-risk asset allocation
- 80% in top cryptocurrencies;
- 15% in popular altcoins with high liquidity;
- 5% in low-cost crypto assets of promising projects.
2. Example of high-risk asset allocation
- 60% in top cryptocurrencies;
- 25% in popular and promising altcoins;
- 15% in coins of projects just entering the market.
Investing in coins of only emerging projects can quickly pay off and even bring good profit, but you should be careful with such assets. You should always be on the lookout.
A cryptocurrency portfolio is a very convenient and effective tool that helps to reduce investment risks and distribute assets in such a way as to get the maximum return from investments.
Today, investing in cryptocurrencies is still a profitable way to generate income, but you should keep in mind the volatility and risks. The strategies as well as the cryptocurrencies described in the article should not be taken as financial advice. Always do your own research and make decisions based on it.