What is Crypto Portfolio Diversification ?
Crypto portfolio diversification is the strategy or act of investing in various crypto assets to spread the risk or lower the total risk of investing in these assets. So, if one or some of the assets stop performing well, the other assets will protect your investment and prevent you from losing too much money.
Why should you diversify your crypto portfolio ?
Diversifying your crypto portfolio helps you to weather the storm of sudden crypto crashes and the inevitable bear market. So, when the prices of popular crypto like Bitcoin are falling, a diverse portfolio of other popular coins, altcoins, and stable coins will ensure that you don’t lose a lot of money, unlike others.
- Swapping Assets : diversifying your crypto portfolio also makes it faster and easier to swap assets as soon as possible. For example, you might want to swap some Ethereum for cash or sell it to buy another coin asap, but the processing fees might be too high and the processing time too long. Having other cryptos in your portfolio will help you make the same transaction with ease.
- Hazard Protection : also, diversification also protects you from the hazards of investing in new crypto projects. A lot of the new crypto projects turn out to be complete scams or failures that didn’t deliver what they promised. Some crypto projects also fail due to regulatory challenges. Diversification protects you from these things.
- Creates More Opportunities : diversifying your crypto portfolio increases the chances that you run into a jackpot or a crypto-asset with tremendous astronomical gains. The more coins you have in your portfolio, the higher the chances that one of them will take off on an unprecedented, jaw-breaking bull run.
Is portfolio diversification a new thing ?
No, it is not. For several decades, portfolio diversification has been applied by stock market traders, commodity market traders, forex traders, and even gamblers. It is a tested and trusted strategy that works for several people. Every serious trader should diversify their crypto portfolio and spread it across various coins.
But that doesn’t mean that you can’t hold more of the major coins like Bitcoin, Ethereum, and Litecoin if you wish. You just need to hold a reasonable quantity of other coins and hold or trade them as you wish.
Is there a right time for the diversification of crypto assets ?
No. You can diversify your crypto portfolio anytime. But it is harder and less profitable to diversify small crypto investments, due to the higher transaction fees compared to the value of the actual coin being transacted.
As a new trader, you can start with two or three coins. As your portfolio increases in value, you can add more coins to it.
As the popular saying goes, “don’t put all your eggs in one basket.” Crypto portfolio diversification is the right way to go if you want to safeguard your investment and get higher returns in the long run. It has various advantages, with hardly any disadvantages. Aim to have a portfolio with a combination of Bitcoin, other popular coins, stable coins, and altcoins. Besides, you may also receive a Bitcoin gift from a friend.