A Guide For Cryptocurrency Portfolio Diversification
The cryptocurrency market always keeps the people drawn to it with its fluctuating market rates. It is not possible to predict when the market value of cryptocurrencies may go up or fall. Bitcoin reached its all-time high market value only to plummet into negative numbers overnight. This sudden drop is the main reason why the crypto markets are considered as volatile and why people are advised to move with caution when they are investing in cryptocurrencies. Major Cryptocurrencies such as bitcoin and Ethereum are much more volatile than the minor cryptocurrencies that aren’t always in the news. However, they are also quite volatile and may rise or fall in value without any notice.
There is no such thing as a risk-free investment however there are some ways in which you can reduce the risk of loss. The most common and recommended way of reducing loss risk is by creating a diverse trade portfolio. In this article, I will talk about the best ways to achieve a diverse trade portfolio.
Best Ways To Diversify Your Portfolio
Diversify Investment Industries
Online trading firms provide access to the financial markets of many different types of assets to online traders and investors. They support the trade of forex, commodities, stocks, indices, precious metals, and many more assets. So, while you are pursuing your interest in cryptocurrency investments, you can also reap the benefits of investing in other industries. This is a great way to diversify your portfolio because the market values of different industries are not related to each other. So, even if an industry completely crashes, you have backup investments in other industries.
Invest In Different Cryptocurrencies
After you have invested in different industries, you can further diversify your portfolio by investing in different cryptocurrencies. While bitcoin is an attractive investment option, you shouldn’t put all of your money into it. Instead, venture into different altcoins to maximize diversity in your portfolio. If you are not interested in other industries, you can simply invest in different cryptocurrencies to diversify your portfolio.
Different Investment Timings
As mentioned earlier, when dealing with assets as volatile as cryptocurrencies, the timing of the investment plays an important role. So, when you are trying to diversify your portfolio, you also need to diversify the timing of your investments. The best time to buy cryptocurrencies is when the market values are dropping while the best time to sell them is when they are on the rise. Just make sure that you don’t invest in a lot of different cryptos at the same time because the crypto market is on the low.
Invest In Cryptocurrencies From Different Countries
Similarly, you can also create diversity by investing in assets from around the globe. So, if you are located in Europe, you should invest in blockchain projects from Asia because the continent has a large following of investors which makes it an attractive option. The way you diversify your portfolio is totally up to you just make sure that you are not investing in projects from countries with low blockchain activity.
Don’t Invest Outside Your Financial Range
Now, this is something that may seem obvious but people often tend to ignore it. A lot of people tend to forget that while cryptocurrency investments can prove to be profitable, they can also bring in the same amount of loss. And as a result, they start investing in assets that they should avoid. Don’t invest a sum that you will not be able to pay back if your investment fails and the market value drops. Many people take out loans for investments and are unable to pay them back if they lose the money to falling market values. So, always remember the golden tip which is to never make investments larger than what you can afford.
Diversity in your trade portfolio reduces the risk of loss that you may face if the market value of a certain cryptocurrency drops. This is because your investment capital will be distributed among different assets which may not see a drop in their value. So, the overall loss that you will face will be from a small percentage of the total money that you invested. Moreover, with investments scattered around different industries, you will have a chance of earning profits even if the entire crypto market is undergoing a period of increased volatility. A diverse trade portfolio allows traders to practice low-risk investments.