Like stocks and other tradable assets, the crypto market is constantly in flux, and each cryptocurrency offering is a living, breathing market unto itself. One of the best ways to manage risk is to ensure that you haven’t placed all your eggs in one basket. You can only do this if you diversify your cryptocurrency portfolio.
What Is Cryptocurrency Portfolio Diversity?
When you buy a cryptocurrency and hold onto it with the intent to sell, you’re effectively investing. Now, ideally, you’ll hold until there’s an uptick in the value of that coin and then sell for a profit. But just like other tradable assets, cryptocurrencies aren’t the most stable investments. They are currently the most volatile. So, just like your friends on the stock market, you too must learn to diversify. This means investing in multiple cryptocurrencies of different types at the same time.
Why is Cryptocurrency Diversification Important?
Diversifying your portfolio is taking advantage of the fact that each coin has different market drivers and values at any given time. With enough diversity in your profile, you can significantly mitigate a lot of the risk that comes with owning and trading only a single cryptocurrency.
Better still, you will be in a better position to capitalize on surprise upticks in any of the coins that you’ve bought. While each cryptocurrency is its technology and fundamentals, a rise in the price of Bitcoin can increase the value of cryptocurrencies across the board at any time.
How to Diversify Your Portfolio
Diversifying your portfolio is certainly a concrete cryptocurrency strategy. However, rushing in without some idea of what you’re doing is just as bad as trading on a single coin, or even worse. The tips below will help you diversify your portfolio with insight.
Research, Research, Research
Do the research and plan out your portfolio. As you do so, consider market trends, and current prices. Most critical of all, do not look at all cryptocurrencies as equal or compare their current prices directly. Remember, each coin has its purpose, and the values and trends might be a reflection of that.
Pace Your Investments
Pace your investments because buying up large amounts all at once is risky, even if it is across the board. Instead, rank your investments in the order of priority and invest over time in each of them. This allows you to monitor the market as much as you can and make adjustments to the original plan as the situation develops. You’ll be glad you took your time when there’s a sudden upward trend that you can hop on or a steep decline to avoid.
Review Your Portfolio At Intervals
Continue to grow and improve your portfolio based on performance. As you learn more, experience more, and reap more rewards, you should fine-tune your plan and place more funds in. When necessary, get rid of some assets that aren’t showing progress.
You will never fully eliminate the risk associated with any form of trading cryptocurrencies. However, by diversifying, you can certainly give yourself a fighting chance against unforeseen downturns. For more information about diversifying your cryptocurrency portfolio, visit OSOM Finance.