An important feature of the cryptocurrency market is high volatility. The price of even the most stable coin is constantly changing. Sometimes daily fluctuations of the rate reach 20–30%! Many traders refused to invest in a single cryptocurrency and switched to using cryptocurrency portfolios in such conditions. What are these portfolios? How do they differ from traditional investment tools? How to create a cryptocurrency portfolio? We will describe in this article.
What is a cryptocurrency portfolio?
A cryptocurrency portfolio is a collection of cryptocurrency assets of an investor that he has gathered together to achieve a specific goal. Obviously, this goal is to earn on the growth rate of the selected cryptocurrency.
In essence, a cryptocurrency portfolio is a type of investment portfolio. The main logic of the formation of one and the other is diversification of investments. That is, you need to invest money in different assets in order to reduce the risk of loss when their value falls.
If you invest 1000 dollars in one asset, then if you collapse its price, you will lose all investments. And if you break the investment into three, five or even ten assets, you will lose only the amount invested in the failed asset. The level can be less due to the profit from other assets.
The high volatility of cryptocurrency allows you to make a profit, even with minimal initial investment. The main thing is to competently make a cryptocurrency portfolio. Today there are about 1000 different cryptocurrencies, but not all of them can boast of high investment attractiveness.
How to choose assets for a cryptocurrency portfolio?
As we have already found out, the main rule of a balanced cryptocurrency portfolio is a high level of diversification. Experienced traders advise to add from three to nine cryptocurrencies in the portfolio. They call the main criteria for their choice.
According to experts, the main rule for creating a cryptocurrency portfolio is the correct of well-known, expensive and cheap, but promising cryptocurrency. There may be a lot of working investment schemes.
How to create a cryptocurrency portfolio: basic schemes
Beginners better use the so-called conservative portfolio. It is less risky, and therefore safer for the investor. Form it as follows
Using such a scheme, you minimize investment risks, because you invest most of your capital in proven assets. Only 5% of investments fall on risky projects and in case of their failure you will lose not so much.
For experienced investors, the so-called aggressive portfolio is also suitable. The share of proven cryptocurrencies in it is significantly reduced and investments are added to the ICO – a very popular, but risky tool of the cryptocurrency market.
Many investors prefer to use the Buy & Hold strategy. Its essence is simple – you need to buy cryptocurrencies with the prospect of long-term growth and not to sell coins until their price reaches a peak value.
Experts say that now it makes sense to invest in the so-called “protocol coins”. There is every reason to believe that with the active development of blockchain technologies, cryptocurrency will become increasingly integrated with the real sector of the economy.
Cryptocurrency platforms, which offer not just another coin, but a new model of economic interaction based on the blockchain, receive a strong push for development. These include NEM, NEO, EOS, IOTA and others.
Most traders are advised to invest in the most popular coins that enjoy consistently high demand among users. These include the top twenty cryptocurrencies in the world ranking.
However, pay attention when choosing a cryptocurrency you need to focus not on the ratings of cryptocurrency exchanges (their prices are often overestimated), but on data from authoritative sources. For example, it is very convenient to use an analytical summary of the CoinMarketCap information portal.
Obviously, the portfolio with the third option of distribution of investments brought the highest return of 80% – the top cryptocurrency, 15% – the new popular cryptocurrency, 5% and less – low-cost promising projects. The maximum profit was provided by a conservative portfolio.
Experts note that this trend is relevant today and will continue during 2018. The conditions for the formation of a high-yield cryptocurrency portfolio remain
Analysts have already named five cryptocurrencies, which need to focus on when forming a cryptocurrency portfolio in the current year. These are Bitcoin, Ethereum, Ripple, Lightcoin and Dash.
How to form a cryptocurrency portfolio correctly
However, it is much safer to keep assets in a cryptographic wallet. Experts advise to make a choice in favor of hardware wallets from Trezor and Ledger. Simply determine the cryptocurrency for the portfolio and select a multi-currency wallet with the support of the coins you need.
If you are accustomed to working with investments on a cryptocurrency exchange, it will not be superfluous to use additional software. For example, the Satoshi Pie program will help distribute funds between assets and will track the volatility of cryptocurrencies in real time.
The process of forming a cryptocurrency portfolio should be approached with the utmost caution and try to avoid typical mistakes of inexperienced investors.
In conditions of high asset volatility, investment should be diversified. And a cryptocurrency portfolio is the best option in order to capitalize on changes in the rate of cryptocurrency, minimize financial risks and understand how the cryptocurrency market works.