By Larry Wright
Introduction
Every professional investor knows the importance of creating a balanced and effective cryptocurrency portfolio. A well-balanced investment portfolio can assist an investor in keeping generating profits regardless of market changes. Without the presence of an effective investment portfolio, an individual or professional investor can’t generate long-term profits and place themselves in a secure investment position.
For cryptocurrency investors, the importance of creating a well-balanced portfolio is even more important considering the volatility and options in the crypto market.
What is a Crypto Portfolio?
An investment portfolio constitutes a basket of investment options such as cryptocurrencies that a digital investor has bet their money on. In simple words, the sum of cryptocurrencies that cryptocurrency investors have added to their collection to make a profit during a given period can be called their crypto portfolio. There are various types of cryptocurrencies depending on their functions and thousands of variants available in the crypto market for each variant.
Therefore, it can be challenging for new cryptocurrency enthusiasts to decide on the perfect combination for creating a viable, effective, and profitable crypto portfolio. This article allows the readers to get a basic idea about factors that should be kept in mind for creating a practical cryptocurrency portfolio like the professional investor.
What are the benefits of a Crypto Portfolio?
Many readers would ask that it is impossible to predict the future about how a cryptocurrency is going to perform. Therefore, why should the investors bother to create a cryptocurrency portfolio? While the best cryptocurrency investors in the world can’t predict the future performance of a cryptocurrency portfolio with 100% accuracy, there are still several benefits of working on a dedicated portfolio. Some of these advantages are listed as under:
- Gambling
- Long-term Stability
- Market Fluctuations
- Higher Profits
- Net worth Evaluation
- Regulatory Compliance
- Risk Management
Gambling
Gambling is another type of investment that purely depends on luck and requires no logical thinking. Some beginner investors seem to treat the cryptocurrency market as a gambling ring. However, there are many cases where the investors who were initially able to generate big turnovers later suffered from massive losses as they did not have any idea about the perfect time to withdraw their money. Therefore, cryptocurrency investors who have a carefully selected portfolio can retain their profits and cut their losses before it’s too late.
Long-term Stability
Long-term stability is the goal of all professionally trained and experienced investors. The biggest financial companies in the world intend to list the investment vehicles that have been able to generate profits for their clients for a long duration. Without the presence of a dedicated and specified crypto portfolio, no asset manager or broker can maintain a steady and long-term generation of investment profits for a long duration.
Market Fluctuations
Cryptocurrencies by design are often subject to greater market fluctuations and volatility in comparison to traditional investment options such as stocks and bonds. Therefore, it is not ideal for any investor to proceed without dedicating a suitable array of digital assets to create a crypto portfolio that can ensure stability and mitigate the harsh impact of sharp market declines.
Higher Profits
The sensational stories in the media can make it seem like amateur cryptocurrency investors were able to make massive profits with little knowledge and experience. However, the number of such “success stories” is less than the number of lottery winners in reality. In reality, professional and trained cryptocurrency investors can generate many times greater wealth than a radically small percentage of investors who have put all their money in one cryptocurrency.
Net Worth Evaluation
When individual investors can master the skill of creating a viable crypto portfolio, they are not only able to generate a considerable amount of wealth but also increase their value. A person who has learned the ability to create a profitable crypto portfolio can cash in their skillset by way of offering consultation services or creating a hedge fund inviting big investment interest that, in turn, increases their net worth evaluation.
Regulatory Compliance
Without the proper knowledge about the cryptocurrency market, a person can’t create a crypto portfolio. Therefore, even if amateur investors can generate some profit by the stroke of luck, they can end up losing their profits on account of clashing regulatory guidelines in their region.
Risk Management
Risk management is an important skill when it comes to creating a cryptocurrency portfolio. The greater the ability of an investor to understand, evaluates, and manages financial risks, the more their portfolio can gain goodwill in the market. By opting to create a balanced crypto portfolio, investors are also opting to brush up their skills in the risk management department.
Important Features of Crypto Portfolio
When it comes to a viable cryptocurrency portfolio, some important features are considered standard for measuring its health and efficiency. In layman’s terms, just like a dish needs to contain certain ingredients, a cryptocurrency portfolio must possess the following features to get qualified as a successful and trustworthy investment vehicle. Here are some of the essential features of a cryptocurrency portfolio that warrants its credibility:
- Diversification
- Technical Analytics
- Market Research
- Technical Audit
- Investment Plan
- Asset Allocation
Diversification
Diversification is one of the most important features when it comes to creating a reliable and long-term cryptocurrency investment portfolio. Diversification constitutes that an investor ensures adding a considerable number of different cryptocurrency assets in their portfolio to generate a balanced and thought-out investment mixture. A diversified portfolio is more stable since it can minimize the loss of investment in one cryptocurrency by making up with the profits in other cryptocurrencies in the portfolio.
Technical Analytics
Technical analysis is the key to generating a well-balanced cryptocurrency portfolio. The investors ensure that they can generate a considerable amount of cryptocurrency income by studying the technical factors acting in the market. Technical analysis can include economic forces that can impact a cryptocurrency portfolio. Furthermore, the technical analysis also accounts for the price changes based on factors like market speculation and goodwill towards a cryptocurrency in the marketplace.
Market Research
Without the ability to conduct reliable and solid market research no investor can choose the best cryptocurrencies for adding to their investment portfolios. Many cryptocurrencies depend on the feedback of the investors regarding that particular cryptocurrency. The market research also demands a greater understanding of technical analysis tools for measuring different acting forces on the price and performance of a cryptocurrency in the marketplace.
Technical Audit
Most professional investors make sure to conduct a financial audit of a company before buying its stocks. However, cryptocurrencies are online entities which means that they are always vulnerable to hacking and exploit threats. Therefore, cryptocurrency investors need to make sure that they conduct a detailed technical audit in addition to the financial audit to ensure that their investment is not going to crash to ground zero on account of a sudden hack attack.
Investment Plan
Creating a crypto portfolio requires the presence of a reasonable and vetted plan for cryptocurrency investors. The investment plan an investor undertakes depends on various factors such as their goals, budget, regulatory environment, skillset, etc. A cryptocurrency investor needs to determine their investment plan using technical methodologies such as the cost-averaging method, compound interest, and several other paths depending on their personal preferences.
Asset Allocation
Asset allocation is often confused with diversification. Asset allocation accounts for a technique that allows investors to spread their investment across different cryptocurrencies. With asset allocation, the total amount of funds for investment is predetermined and does not change in most cases.
Types of Crypto Portfolios
When it comes to a well-balanced cryptocurrency portfolio, there is more than one formula for creating the path to success and profit. In reality, there is more than one type of cryptocurrency investment portfolio that any digital currency investor can opt for. Here are some of the most common types of cryptocurrency portfolios that an investor can adopt and keep building on to ensure that they can draw profits for the long run:
Concentrated Portfolio
A concentrated investment portfolio accounts for a type of investment choice that does not allow the investors to spread their cryptocurrency portfolio in several asset classes. When it comes to investing, most investors tend to go with the idea that putting all eggs in one basket is not ideal.
However, in some cases, when an investor is only starting, they can lack the ability and skills to examine the whole market and keep an eye on several different cryptocurrencies, which can lead to a crash despite diversification. Therefore, a concentrated portfolio can help an investor to get started with a relatively smaller choice of asset allocations in their portfolio.
Diversified Portfolio
A diversified portfolio contains a considerable amount of cryptocurrencies to ensure that the volatility and risk are reduced for the overall investment. However, it is not ideal for an investor to add random cryptocurrencies depending on their market performance alone.
A diversified portfolio works best with the cryptocurrencies that depend on alternating market factors for printing more profits so that they are well-positioned to make up for the losses in one asset class by generating positive returns for that duration.
Hedge Funds
Hedge Funds are investment vehicles created by professional investors with a proven track record that create a basket of a portfolio by adding a suitable number of cryptocurrency variants, types, derivatives, and other cryptocurrency-valued products such as NFTs or ETFs. A crypto hedge fund can attract huge investment funds from the biggest financial companies in the world to create profit with their equity dedication.
Trust
Trusts are a different type of investment vehicle that allows an investor to create a fund that can be awarded to any other individual, such as their children or legal heirs. A Trust is not usually generated with the view of creating a profit for the direct use of a person for their use. The creator of a Trust can appoint the caretaker of the trust and also holds power to nominate its beneficiary. Trust managers are typically brokers who can invest the funds in a trust and generate profits for the beneficiary of the Trust. At present, Grayscale is the largest cryptocurrency trust in the world.
Venture Capital Funds
Venture Capital companies aim to hunt for cryptocurrency startups and growing companies such as exchange platforms for investing. There are several dedicated cryptocurrency VCs in the crypto market, while traditional financial enterprises are also actively participating in cryptocurrency ICOs to invest. On the other hand, some blockchain companies have opened community-based funds to mimic the traditional VC function that allow every cryptocurrency holder to put participants in the funding process to earn a profit.
Aggressive
An aggressive portfolio opts for outsized profits with an appetite for a greater percentage of risk involved.
Defensive
A defensive portfolio is a type of cryptocurrency portfolio that an investor with a smaller appetite for risks undertakes to opt for a smaller percentage of profit returns.
Hybrid
A Hybrid portfolio traditionally adds 60% stocks and 40% bonds using the total investment portfolio. However, with cryptocurrencies, hybrid portfolios can account for various types of crypto classifications such as stablecoins, NFTs, altcoins, and other cryptocurrency assortments.
Speculative
A speculative portfolio can incorporate passive and active cryptocurrency options with equal proportions. It is ideal for investors who are looking for a medium-term investment vehicle.
Income Portfolio
An income portfolio purports a type of cryptocurrency portfolio that accounts that is focused on creating a steady and consistent generation of investment rewards in the form of regular income. Income portfolios opt for smaller gains to ensure a long and sustainable version of a crypto investment portfolio.
Retirement Blended Portfolio
The 401k accounts allow the salaried person to ensure to allocate a fixed percentage of their income to goes into their retirement accounts. There are some dedicated cryptocurrency-based retirement funds, while some traditional financial companies such as Fidelity are also offering their consumers to add cryptocurrency investment options for enhancing their 401k accounts.
Socially Responsible
Socially responsible accounts typically opt to invest in businesses that are not dealing in products such as alcohol production and ensure safe work practices for their workers and produce. With cryptocurrencies, the socially responsible portfolio can account for the investment vehicles that refrain from adding environmentally hazardous digital currencies.
Enhanced Value Investing Portfolio
Enhanced Value Portfolio focuses on market forces such as price-earnings and price-book ratio for creating a crypto portfolio. The EVI was introduced by Benjamin Graham. This type of investing uses quantitative metrics such as fund flows and ask logical questions such as heavy net flow range, making way for a smaller profit bracket in the short run for a particular asset class.
Conservative Portfolio
Conservative portfolio aims to take the tried and tested methods of portfolio models in a given market to increase its chances of printing profits. However, depending on economic, environmental, and social factors, the conservative portfolios are subject to risks.
Steps for Creating a Well-Balanced Crypto Portfolio
- Divide the cryptocurrencies under consideration into high, low, and medium-risk assets.
- Use blockchain byproducts such as stablecoins to increase the liquidity of your portfolio.
- Keep editing your portfolio on an ad hoc basis.
- Use a diversified number of cryptocurrency technical metrics to perfect and update your investment strategy.
- Conduct in-depth research, collect information from external sources and make an effort to reconcile the information to filter biased and speculative projections.
- Set a safety net for sustainable losses and refrain from trading without experience using borrowed funds or investing in huge quantities.
Top Cryptocurrency Investment Trackers
Cryptocurrency exchange platforms offer technical tools and trackers to facilitate the investors to conduct technical analyses of the market and make the best decisions. Here are some of the best crypto portfolio tool management providers:
CoinGecko
CoinGecko allows investors to track cryptocurrency prices in real-time. It also provides dedicated portfolio management tools that are free of cost. Users can track their portfolios on browsers and mobile applications for ease of access.
CoinMarketCap
CoinMarketCap is one of the most popular cryptocurrency portfolio tracking services in the world.
It also provides free portfolio tracking services on browsers and mobile applications. Furthermore, the CoinMarketCap tracker does not require the investors to connect their digital wallets or exchange account for analysis. It also provides the real-time difference between the purchase and current prices of all the assets in your portfolio.
Delta
Delta is a mobile application-based cryptocurrency tracking service that also makes room for a traditional portfolio such as stocks and bonds. It can make the perfect calculations for a portfolio spread across more than 20 exchange platforms and various digital wallets. Users can opt for free and paid versions.
Conclusion
Both beginners and professional investors need to do a lot of work and preparation to create a viable and well-balanced cryptocurrency portfolio. Using the portfolio, investors can warrant long-term profits and have greater control over their investment while reducing the involved risk significantly.
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