How to Diversify Your Crypto Portfolio Like a Pro

Crypto investing is becoming the new gold rush and since Bitcoin tripled its value and reached an all-time high of 60K dollars, many new investors started considering cryptocurrencies as an investment. 

Even though you might believe in the future of finance that will include cryptocurrency and Blockchain technologies, there are few things to consider before you start investing. 

If you are new to the crypto world, you can easily be overwhelmed by all the different types of cryptocurrencies and trying to understand how they work. However, there are few things you need to understand in order to become a successful crypto investor.

The first thing about investing in any asset, property, or crypto is risk management. The best way to manage risk is by diversifying your investment portfolio.

How to Diversify Your Crypto Portfolio

Most investors are strictly focused on Bitcoin, which is no surprise, but many other cryptocurrencies can offer even bigger returns than Bitcoin. The point of this article is to diversify your cryptocurrency investments in order to stay safe if something happens.

Let’s be real, nobody can predict if the price of Bitcoin will go to 100K USD or drop down to zero. So, if you invest all your money into Bitcoin, you’ll be heavily hit if something happens. 

Spread Your Crypto Across Multiple Industries

Remember, every cryptocurrency is designed to solve some problem in the financial sector, which means that some cryptocurrencies are more preferred in one sector over another. 

For example, one of the biggest industries that experienced huge growth in the past couple of months is the casino industry. Even NBA is investing in the crypto industry, with the NBA top shots, a blockchain service where you trade cards from the players in the latest NBA trade rumors 2021.

The best thing about this is that Bitcoin is heavily embedded into the Casino world which promises more opportunities for people which translates to price growth. On the other hand, Ethereum (ETH) which is probably Bitcoin’s biggest rival (even though they are not similar currencies), tries to solve another problem.

Ethereum is a decentralized network that uses blockchain to confirm the authenticity of a digital product. This is where ETH comes in handy and it might be the beginning of something even bigger. 

It is now used in the digital asset world in a form of trading non-fungible tokens. These tokens allow people to sell digital art to customers and thanks to blockchain they can prove that they are the only owner of this digital product.

In other words, Bitcoin is more of a traditional token, and Ethereum is more of a yield-earner and can be used for smart contracts.

Diversify By Location

Even though you cannot get rid of market risk, you can leverage your portfolio by timing it and knowing where you invest your money. Some people decide to diversify their portfolio by location, which is not a popular option just because most cryptocurrencies are not affected by location.

You should analyze the performance of cryptocurrencies in different parts of the globe. By balancing your portfolio from different locations, you can minimize the risk of price dipping caused by local external issues.  For example, if the majority of the population of Europe uses Polkadot, if the European Union decides to ban cryptocurrencies, the price will drop significantly. 

Best Diversification Plan

So, after all, this, what is the best diversification plan for your crypto portfolio? – Well, there isn’t a secret ingredient that will work since it depends on how you plan to use your crypto, is it a long-term or short-term investment, and many other factors. 

However, most people decide to put around 25% of all their money into Bitcoin, since it is the biggest cryptocurrency today. They allocate another 25% of their crypto investment to smart contract functionality cryptocurrencies like Ethereum, Cardano, and Polkadot. 

The other 50% of your crypto portfolio should be combined by promising cryptocurrencies that are trying to solve some problem. You should put 10% of five different cryptocurrencies that you believe in. 

Either way, try to focus on the two main cryptocurrencies and try to diversify the rest of your investment into smaller cryptocurrencies that have the right technology and promise huge potential.