The Most Comprehensive Guide on How to Build a Crypto Portfolio for Success.
Learn How a Stable Crypto Portfolio can Help you Maximize your Potential Return without Taking too Much Risk.
Balancing your crypto portfolio is basically about managing your risk and reward ratio. These two essential concepts go hand in hand, and they are the main factors you need to consider when investing.
Redistributing your crypto portfolio can be challenging, but it’s essential. You’re just moving money around to keep things in your desired ratio or risk level.
To enjoy a rewarding ROI (Return On Investment), you need to take some risk because the risk is an integral part of the investing experience.
In general, higher rewards are associated with higher risk. Therefore, the challenge is to find the most profitable balance between greed (obtaining a significant return on your investment) and the fear of losing everything.
Considering the sensitive and unregulated nature of the crypto space, along with the standard and dramatic price swings, you need to be prepared. Keep up to date with research and analysis to secure your financial future.
Building a crypto portfolio that meets your investment goals will dramatically increase your wealth over time. You can also save money on stable coins for peace of mind, have complete control over your investment, and get a real sense of satisfaction.
Get ready for ups and downs and be prepared to sell coins to cut losses. Overall, you will do well if your core portfolio is full of altcoins with high capital growth and reasonable potential.
You can also grow your crypto portfolio exponentially by adding trading automation software to your toolbox. Still, more on that later, let’s talk about how to manage your crypto investment first.
Keep Reading so you can understand how to create a well-balanced Cryptocurrency Portfolio that will help you achieve your long-term financial goals.
What is a Crypto Portfolio?
A crypto portfolio is your total investment across all cryptocurrency types. A cryptocurrency portfolio is defined as the different financial assets (crypto coins) held by an individual.
You can construct investment portfolios based on the Modern Portfolio Theory (mean-variance analysis) or the three-parameter (Low, Medium, and High Risk ) portfolio theory.
Modern portfolio theory can help investors diversify their investments to reduce risk and achieve greater returns.
According to this theory, investors should choose a higher average return over a lower return and a lower return variance over a higher return.
The primary purpose of building a crypto portfolio is to have different altcoins, thus balancing profits and losses strategically.
In other words, you should not worry about the expected return of an individual investment but rather the combined return of all your assets.
What is Effective Crypto Portfolio Management?
An effective investment plan is about building a portfolio on the premise that investors have consistent expectations. These effective investments can be determined using crypto portfolios tracking apps such as CoinStats, Blockfolio, and the likes.
Many people choose to use the services of these trackers to manage their portfolios. Some of these platforms are natural bodies that act as intermediaries between buyers and sellers.
Crypto platforms offer a range of services such as setting up an account, managing the account, and executing traders’ orders. However, it would help if you were cautious when determining your app, meaning the difference between profit and loss.
There are many apps licensed to trade on different exchanges, and choosing the right one is only a matter of chance. To select the most suitable platform, you should research online and ask other traders about their experiences with different brokers.
It would help to understand the commission charged by a trading platform in detail to determine the actual cost per trade before making the transaction.
You can also take advantage of the dollar-cost averaging strategy, which reduces the impact of volatility on your overall investment. This strategy includes dividing your contribution into periodic investments to minimize the effect of a sudden change in the market.
What are Asset Allocation and Diversifications?
It is often said in the investment world not to put all your eggs in one basket. This saying accurately describes diversification, which includes helping reduce your risk by investing in various asset classes. To maintain stability and safety, you must diversify your investments.
Asset classes most commonly used by investors are cryptocurrency, stocks, bonds, cash equivalents, etc., and diversification is basically about mitigating unexpected exposure to market loss that can zero your account.
Asset allocation is how you allocate your capital among different types of assets while minimizing unnecessary risk. The first thing to do is to develop your asset allocation strategy.
Asset allocation involves determining the percentage of your portfolio to invest in particular asset classes based on your risk tolerance, investment horizon, and personal financial goals.
For example, in your cryptocurrency investments, you can diversify your coins and tokens. You can invest a more significant percentage, let’s say 60% in Bitcoin, and then invest the remaining 40% in altcoins, meme coins, and maybe NFTs.
Proper diversification and asset allocation should eliminate your desire to try to synchronize the markets. Possible risk reduction can help limit your losses, even in a declining market.
Concentrated vs. Diversified Crypto Portfolio
Diversification preserves wealth, and concentration creates wealth. These are two different investment principles. Over time, many investors are constantly evaluating their investments based on these concepts (Concentration and diversification).
Diversification is excellent. However, the concentrated position is more of art than science.
What is a moderate amount of diversification for your portfolio? Well, it depends on quite a several things.
How much currency you are willing to invest, how much time you plan to spend reviewing your portfolio, and how many different market segments you are interested in and know about.
No set amount of diversification is suitable for everyone, but some general guidelines make sense when asking the question. “Am I diversified?” And, if I am, is my diversification appropriate for me?
The first question is. How many different areas to invest in? If your funds are limited, the best way to diversify is to take concentrated positions.
Concentrated positions exist for many reasons throughout our investment careers, and they are not wrong. Sometimes it helps you with small capital, and it is what creates wealth.
Many traders who achieve multi-million net worth have done so by having a large portion of their net worth in a single coin at some point in their careers.
I will say this; it is more of greed and lack of focused post-management than the position itself.
After all, when you hear that somebody had lost everything, they had to have won a lot hence had something to lose, so the position must have worked for a while! My point here is that a concentrated position is not always wrong. You have to have a few strategies to handle it and then do it.
However, if you have enough funds, it probably makes sense to build your own portfolio once you are ready to do your homework and monitor your portfolio.
In this case, diversification would mean investing in a minimum of 5 different market segments with a minimum of two (preferably more depending on the funds available) crypto coins in each category.
Investment segments to choose from would include holding some stable coins, NFTs, Altcoins, meme coins, and more. Then, within these categories, an investor may want to diversify further by opting for small caps, large caps, growth, income, etc.
Whichever categories you choose, the important thing is to pick individual coins that you understand and not be so diverse that you can’t keep up with your investments and to make corrections midway as the market situation changes.
Additionally, as some coins get pumped, and some get dumped, you should periodically determine if your original percentage fund allocation remains intact.
By rebalancing your assets regularly, you will ensure that you are not too concentrated in a segment and that you are making profits or reducing losses effectively as you reallocate your funds to meet your investment goals (whether on a monthly, quarterly, or yearly basis) depending on your investment style.
Different Types of Cryptocurrencies
There are different types of cryptocurrencies, ranging from Bitcoin with the most significant market cap to altcoins. Below are types of cryptocurrencies that can get you a well-balanced portfolio.
In reality, everyone in crypto knew Satoshi created Bitcoin because of the inefficiencies of the financial system that initially existed. Its decentralization feature has ever been a plus.
Bitcoin and Ethereum are the leading players here as facilitators of cross-border payment systems, aiming to make transactions faster, cheaper, and more secure without the intermediaries of the existing financial system.
These coins are considered to be a counterpart digital currency alternative to real-world US dollars.
Crypto developers from different financial entities created this cryptocurrency class to deal with the price volatility typically associated with Bitcoin. To provide stability, stable coins are tied to a collateral reserve asset, such as the US dollar (or other fiat currencies), gold or other precious metals, etc.
The entity behind the stablecoin will usually establish a reserve account where they keep the asset (or bag of assets) to back up the stablecoin.
In this way, this type of cryptocurrency aims to offer the best of both worlds: the speed and agility of a digital currency, as well as the price stability of a fiat currency.
The most common examples of stable coins are USDT, USDC, DAI (MAKER), PAX, and TUSD.
Governance tokens allow token holders to vote on changes to the platform’s processes related to decentralized finance. An example of a governance token is the Uniswap UNI token.
UNI offers licensees the opportunity to contribute to the development of protocols and the development of the Uniswap ecosystem in general.
In the past few years, decentralized governance has been an important trend in the crypto world. Decentralization matters to many people, and they are interested in being involved in governance.
Although many don’t care about politics in their day-to-day life, crypto people seem to really love having a say in their favorite projects.
Why are these new governance tokens so important? Because they represent the future of decentralization. There is no mining involved, and decision-making power is limited to those with a stake in a platform.
It’s like having shareholders who are rewarded for their business success.
Utility tokens are a particular type of crypto issued to fund a product or service development and can later be used to purchase goods, services, or unlock features from the issuer.
Utility tokens have value, but you should not consider them as money or use them to speculate as you would with a regular coin. Think of them more like loyalty points or store credit.
Note that the words “coin” and “token” are often used interchangeably. However, there is an important distinction to be made. A coin is a cash that is exchanged for goods via a blockchain network. A token is anything else, such as services, membership, or company shares.
How to Build a Well-Balanced Crypto Portfolio
Before delving into cryptocurrencies, it is essential to develop a framework for evaluating potential exchanges. Evaluating core value propositions, functionality, community size, uniqueness, and market opportunities are some of the many areas you can explore in detail.
Due to the high volatility of cryptocurrencies, profitable trading opportunities present themselves every day, but not without risks.
So how do you structure a portfolio of coins to maximize your wealth, ensure peace of mind, give you full control over your investments, be easy to manage, and be satisfying?
Conduct High-level Research
If you are new to cryptocurrency, you have probably heard of Bitcoin, Ripple, Ethereum, and maybe Litecoin.
However, this knowledge base only scratches the surface of what can be as complex as you decide to be familiarizing yourself with the market and learning about leading. Emerging cryptocurrencies and their different market sectors can help you build a resilient portfolio to weather the inevitable storms to come.
Once you have refined your crypto outlook, start by checking online to see if the project has published a whitepaper. These typically provide a roadmap for the cryptocurrency and details about the team that develops it. They also describe how cryptocurrency works and break down unique value propositions.
Here are some reasonable questions to ask yourself before your next crypto purchase to gauge its quality briefly in your research process:
- What did it take you to find this altcoin? Do they have a strong online presence?
- Are you passionate about the team and the user base? Have they ever succeeded?
- Are they involved in the crypto community on Twitter, or do they appear at technical conferences?
- Does this coin have a strong community that believes in it, or is the support base mostly based on speculation?
- While reading the white paper, did you get the impression that the team dreams their coin ability to do it all?
The coins that promise the moon will run out of funds normally have technology that is not reliable and likely does not understand the tradeoffs between specific algorithms and protocols.
Once you have decided on that…
Keep your Investments Diversified.
Split it between high, medium, and low risks investments accordingly. An allocation across the entire risk spectrum should be considered for cryptocurrencies, from a conservative low-risk portfolio to an aggressive high-risk portfolio.
This will determine the relevance of cryptocurrencies in your portfolio construction and the sensitive percentage of exposure.
Select the asset classes that suit you.
Fill your investment basket with the right mix of coins.
The key to meeting your financial goals and investing successfully is choosing the best possible moderate-risk and average return combination. Periodically rebalance your well-diversified portfolio to maintain the desired mix of poorly correlated assets.
Over time, your asset allocation can vary significantly from what you originally planned. This change is subject to market volatility. Some investments increase or decrease more or less in value compared to others in your portfolio.
When this happens, you must rebalance your portfolio by selling the overweighed assets and using the proceeds to buy underweight assets. Rebalancing helps you bring your portfolio back to your original target strategy by reinvesting in coins that should generate higher returns.
Take note of this fantastic opportunity for increased profitability and return on your investment. Crypto portfolio rebalancing allows you to sell a high-performing asset and buy a low-performing asset. This will enable you to practice the good-old strategy of buy low and sell high.
Stick with your investment plan. Of course, you’ll experience a range of emotions, but with planned and predetermined rules for rebalancing your portfolio, in no time, you’ll be able to maintain focus on your goals. This means you’ll be able to stay centered on your investment plan.
An essential strategy is to rebalance at predetermined intervals. When you stick to your predetermined rules, it’s less likely you’ll make emotional decisions. With this plan, you won’t make financially-driven decisions when an asset crashes or experience FOMO when an asset rises in price.
And lastly, only invest what you can lose.
How to Rebalance Your Crypto Portfolio in 3 Easy Steps
- Keep track of your initial crypto portfolio: When you decide on a rebalancing strategy and buy what you like, record the total amount of money invested and the total value of your portfolio. With that information, you’ll have a good idea of where you stand as your crypto account grows.
- Analyze and Define Your Asset Allocation: On your designated date, review your portfolio and decide which assets are more critical. Make sure you’re on track with the desired allocation. Compare the current distribution to your starting point (or desired budget) to see if your portfolio’s changed significantly. If so, you need to rebalance by buying and selling the relevant assets.
- Re-examine Your Risk Acceptance: The market’s movement or changes in your life may affect your risk appetite. Wouldn’t you like to know how your asset allocation changes since your risk tolerance have changed? If you just felt like the markets have been moving in a bullish trend, you should probably change your asset allocation to more aggressive investments, thus maximizing your profits.
You can do those 3 simple steps manually or take advantage of a portfolio manager platform. Let’s check out some of them!
Crypto Portfolio Trackers
Portfolio trackers will help you monitor price changes in cryptocurrencies. These platforms allow you to track the movement of your positions.
Some crypto portfolio trackers are also trading platforms, so you can use these platforms to buy and sell the supported altcoins.
Keep in mind that different portfolio trackers have additional features. Some are good for buying and selling but don’t have every coin you need. Some are good at cataloging all the coins in the world but won’t let you buy and sell currencies.
Each portfolio tracker has its pros and cons. You’ll need to compare these to find which one is best for you.
Regardless of your taste, when you choose your tracker, make sure it offers good security features, a simple and easy-to-understand User Interface, and a good mix of coins and exchanges for you to use.
Here’s a list of the Best 3 Crypto Portfolio Trackers.
Blockfolio, now FTX.
Blockfolio and FTX joined forces to create the easiest, most powerful mobile trading experience for digital assets.
Blockfolio is the most popular crypto portfolio tracking app on the market. With over 6 million users and founded in 2014, it’s a heavyweight champion of digital money management. No wonder why FTX acquired them!
The FTX mobile app (Blockfolio) utilizes a sleek, mobile-first design. The design and user experience of this app have always been one of its main driving forces. This app supports thousands of cryptocurrencies and has connections with at least 15 crypto exchanges.
Blockfolio (FTX app) has a helpful project intelligence tool called Signal. It combines news and other data on the projects you love. You can set up alerts to be notified when the Bitcoin price changes or any other altcoin they support. Blockfolio is free to use and perfect for your cryptocurrency needs.
Remember: Blockfolio is now “The FTX Mobile App” or “FTX App” so, don’t get confused when you see the new branding.
Delta is a popular crypto portfolio tracker app that lets you follow your performance. Users can see live price and market-based data, track specific coins, and keep up with the latest trends in the industry.
Delta offers the ability to track every trade, every market movement, and asset in a diversified portfolio. The mobile app has millions of signups and hundreds of thousands of active users. The reason for its success is its gorgeous design and its high functionality.
Delta is a complete portfolio tracking solution. Every entry and exit can be carefully designed to ensure that your assets are tracked every step of the way.
This app is perfect if you’re trying to keep up with all the changes in the crypto sphere. It has a vast inventory of assets, detailed information on projects and news, and is exceptionally well-designed.
Delta has 24 exchanges and 14 wallets (so far) on its supported list and also has a project intelligence tool called Delta Direct that will send you news and updates from your favorite crypto projects.
As expected, Delta allows you to set up Bitcoin and any other altcoin they support, and its basic features are Free.
Delta was acquired by eToro in 2019, so that’s another trusted brand you may be able to recognize.
CoinStats is one of the leading platforms for tracking crypto coins. With over 500,000 users and $5 billion in currencies tracked, they have a lot to offer. The strategy of CoinStats has been to make it available on as many platforms as possible, and they have succeeded.
It has all the automated exchange wallet import features you would expect, along with a diverse news aggregator that crawls a wide range of sources, including Reddit and Twitter for every coin, and a lot more.
CoinStats is a cross-platform product. It supports iOS, Android, web, and Mac desktops. It also has versions for iWatch and Google Chrome extension. CoinStats provides you with the opportunity to manage your cryptocurrency accounts through 26 exchanges and 34 wallets as of this writing.
CoinStats is a company that creates fresh and relevant features and improvements. These new features are released regularly to make the app as helpful as possible. CoinStats is also free to use on a basic level.
While the platforms listed above do a great job of giving you insights into the value of your crypto portfolio, they do not provide automated crypto trading services. Which is the logical step to grow your profits to the next level…
How to Grow Your Crypto Portfolio Exponentially
Don’t fall into the trap of trying to trade using your “gut feeling” or emotions because this is the number one reason why many crypto traders keep failing. They let their emotions get the better of them and end up self-sabotaging themselves.
Enter Gunbot: Apply a Strategy-Based and Structured approach to the crypto markets, and your trading experience will change overnight.
Gunbot is a High Probability Automated Crypto Trading System that applies Rule-Based strategies with easy to trade setups for crypto exchanges in virtually any time frame.
Best of all, Gunbot eliminates the guessing game by providing you ready-made strategies included with your license. All you got to do is fine-tune the strategy values to fit your trading style. You’ll be on your way to growing your crypto portfolio exponentially.
You will not only be able to use strategies, but you’ll also learn to develop your own and become a fully confident trader. Keep reading blogs like this one to understand the techniques and ways of thinking that you can also eventually adapt to your trading in the future.
Instead of hopping from strategy to strategy, learn how to use one methodology and continuously adapt and improve it to fit yourself and the ever-changing market conditions.
Transform yourself from an average crypto trader to a consistently profitable pro trader.
Get Gunbot Now and become a self-reliant trader who doesn’t need to rely on anyone else to trade!
Developing a strategy for your crypto portfolio is not complicated, but it is essential to understand where you want to invest and what kind of investment you want to make.
Planning your strategy for both short-term and long-term growth is essential. Having clarity about your thoughts helps you make some profits, but you should also consider the balance and diversification of your crypto investments.
If you’re thinking about investing in cryptocurrencies, you should know there are tools to help you. A crypto portfolio tracker will let you see the daily price of an asset, its volume, and the size of its market cap.
If you don’t want to put all your savings into it at once, you can regularly use Dollar-Cost Averaging by investing a set amount of money. Just be careful about which tokens and coins you invest in. Do your research!
And last but not least, take advantage of Gunbot, so you can trade those altcoins on automatic and grow your profits exponentially!
Disclaimer: CryptoDROI is NOT a Financial Advisor.
You should always consult a financial advisor before engaging in any trading. If the risks are unclear to you, it is your responsibility to get the information you need, either from a professional advisor or from some other source. All trading strategies carry risk, and you must understand what that looks like before going into it.