How to Build a Balanced Crypto Portfolio?

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A crypto portfolio is a set of one or more cryptos which you can hold. It is different from a traditional portfolio as it has only one asset class. Crypto might be a popular asset class, but it is still volatile. Investors should remember this fact when building a balanced crypto portfolio.

Investors should consider different types of crypto to manage risks in their portfolios. A well-balanced portfolio has multiple types of crypto with different risk levels and uses cases. This article will highlight some best practices for building a balanced crypto portfolio.

1. Invest in crypto market leaders

You can build your crypto portfolio by investing funds in cryptos with large market caps. For example, you could stick to Bitcoin and Ethereum. These crypto coins provide more stability compared to smaller cryptos.

Bitcoin has a market cap of $370 billion at the time of writing, making it the largest crypto coin. Bitcoin uses blockchain technology, which has a decentralised ledger to record all the transactions on its network. Bitcoin pioneered the use of basic cryptography with consensus verification. This system is the foundation of most cryptos available today.

Ethereum has a market cap of around $160 billion at the time of writing and is the second-largest crypto available in the market. Ethereum is a programmable blockchain that enables the creation of dApps and smart contracts.

2. Follow crypto news and keep checking the current crypto prices

Things can change fast in crypto, and news cycles can affect values. Investors can make informed decisions if they stay up-to-date with crypto news. Before 2022, crypto experienced a bull market and grew exponentially during this period. But we are now witnessing that crypto is not immune to economic factors. Hence, news is valuable knowledge when investing in crypto.

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3. Invest in cryptos with different use cases

Crypto has all kinds of applications, and these could be a factor in deciding which crypto you would like to invest in. Payment cryptos provide a low-cost and quick method of transacting from anywhere. Defi platforms offer alternatives to traditional financial institutions. Metaverse platforms have virtual worlds to explore and users can interact with others. Gaming cryptos help power play-to-earn gaming platforms.

You could build your crypto portfolio by categorizing use cases and investing in cryptos that are doing well in each category.

4. Divide your portfolio with market leaders and other potential altcoins

Bitcoin and Ethereum come close to being safe crypto investments, but as we know, there is no such thing as a stable asset. You can also leave a part of your portfolio for altcoins with good potential. You can consider investing in Stablecoins too. Stablecoins are cryptos that are less volatile than others. They are pegged to a fiat currency, which keeps their value stable. Stablecoins can help hold your portfolio’s value when the market is volatile.

Adding other altcoins is an easy way to diversify your portfolio. You have to do your due diligence and research before investing in altcoins. Some cryptos publish white papers or other reports. These reports explain how a particular crypto works, its applications, and its roadmap. It could be useful to read these whitepapers before investing in an altcoin.

NFTs are not cryptos but exist in the crypto space. The main function of NFTs is to provide proof of ownership over a digital asset. NFTs can represent any digital asset, such as art, music, or video. These assets carry value and can help diversify your crypto portfolio.

5. Diversify by investing in Smart contract blockchain networks

Many successful crypto projects are networks that run Smart contracts. There are many types of Smart contracts, including those used to run dApps. Apart from Ethereum, Cardano and Solana are some popular Smart contract blockchains.

6. Use stop losses

Investors can use various tools to keep their portfolios from sinking too far during a downturn. One such tool is stop loss orders. Stop-loss orders are orders to sell a crypto asset when it falls below a certain price. Setting stop losses can protect you from losing a large portion of the value of your crypto portfolio if crypto prices fall dramatically.

Final thoughts

Diversification of crypto assets can help balance your crypto portfolio. Diversification means investing in different types of crypto along with other assets like NFTs. Crypto portfolios will also be subject to higher volatility than traditional portfolios as they have only one asset class.

You must know your risk appetite before building your crypto portfolio. It is also vital to understand the fundamentals and technical indicators of different crypto coins. 

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Disclaimer: Crypto products and NFTs are unregulated and can be highly risky. There may be no regulatory recourse for any loss from such transactions. Each investor must do his/her own research or seek independent advice if necessary before initiating any transactions in crypto products and NFTs. The views, thoughts, and opinions expressed in the article belong solely to the author, and not to ZebPay or the author’s employer or other groups or individuals. ZebPay shall not be held liable for any acts or omissions, or losses incurred by the investors. ZebPay has not received any compensation in cash or kind for the above article and the article is provided “as is”, with no guarantee of completeness, accuracy, timeliness or of the results obtained from the use of this information.

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