Your crypto portfolio - are you diversifying?

As we come towards the end of the first quarter of 2019, the crypto recovery is not quite in full swing as yet, with Bitcoin hovering around that $4,000 mark. If you’re a cryptocurrency investor, you’ll already know that putting all of your eggs in one basket, so to speak, is never a good idea. This is even more important when you’re dealing with what is still a new technology. The crypto market is highly speculative, causing the value of your portfolio to shift erratically on occasion.

Diversification is the answer

Much as you would with any other portfolio, diversifying your investments makes sense. Many crypto investors invest in Bitcoin, and maybe a bit of whatever coin has caught their eye lately and leave it at that, but a more measured approach is often the way to go. Diversification in a bull market can see the value of your portfolio grow far quicker than it would if you choose not to diversify. The correct diversification tactics could see your exposure to high-growth coins increased.

When and how should you diversify?

Generally, you’d be looking to investigate diversifying your crypto investments once they reach around $500-$1,000 or more. If you’re just getting started with $100 or so, then you should probably look to get a feel for the market by choosing two or three of the main cryptos on the market. Everyone has different tolerance levels to risk, so how you should split your portfolio up is entirely up to you and how risk-averse you are, but a good starting point is to invest over half of your portfolio in what is known as a “safe” coin. A safe coin would be Bitcoin or Ether, for example. This is your core position and should consist of coins that are highly unlikely to fail in the foreseeable future.

Another, relatively new area of diversification that is considered safe is investment in an Initial Loan Procurement, such as that being offered by the B11G project in Estonia. ILP investments such as this provide a fixed interest rate over a given period, and can involve fairly safe projects such as real estate. Regardless, the critical point here is that over 50 percent of your total investment should be placed in a safe position. This is the foundation of your portfolio. 

Placing around 30 percent of your stake in a moderate risk investment is advisable, which should consist of coins with progressive development news. This investment should help your portfolio grow steadily over a given period of time, and could include coins like Zilliqa, BNB, and LTC.

Finally, some investors believe that placing 10 percent of your investment total into highly speculative coins or tokens is worth the risk. This is known by many as the gambling stake and should come with the warning that there’s a better than average chance that you’ll lose this money. It’s up to each investor to decide if this is a risk worth taking.

The rewards when this kind of speculation goes your way can be great, while the losses will never amount to more than 10 percent of your total stake, which should make them manageable. However you decide to carry it out, diversifying your crypto portfolio is a smart move and one that you should include in your financial planning heading into the second quarter of this year.