Popular Ways of Diversifying Crypto Portfolio

Diversification of crypto portfolio includes minimizing risks by adding different kinds of cryptocurrencies to a portfolio. It is an integral part of portfolio management purposely done to avoid crashes. Crypto portfolios lacking diversification are significantly more vulnerable to sudden losses and therefore experts prefer diversification. However, many new crypto investors may not be aware of diversification and due to the wrong combination, may not gain the maximum advantage as a result of it. Therefore, the article will discuss some of the common ways of diversifying crypto portfolios to yield better returns.

Exploration of Cryptocurrencies 

The most popular way of diversifying cryptocurrencies is to explore the different potentials of several cryptos. Some of the common examples involving diversification may include opting for  low-cost payments in the world. Gaming coins are commonly used for powering blockchain video games. Metaverse platforms have virtual worlds where users can interact with each other and explore. There are privacy coins that offer untraceable transactions. 

Division of Portfolio into Bitcoin, Ethereum, and Altcoins

Since cryptocurrency investments are volatile, investors can diversify their portfolios by having Bitcoin, Ethereum, and altcoins. Since Bitcoin is the largest cryptocurrency, it should have more proportion in the investment portfolio. Then, Ethereum and other altcoins should follow. In case, users want a safer investment portfolio, then it is advisable to exclude all altcoins and retain only Bitcoin and Ethereum. 

Invest in Smart Contracts

Several blockchain networks run smart contracts. It is a program that runs on a blockchain. These are how blockchain can be used including new crypto tokens. The smart contracts include both new crypto tokens and decentralized apps (dApps). 

Defi Projects

DeFi projects require a significant degree of support. Investors interested in the democratization of money should choose digital tokens that have more than one DeFi project. 

Making Crypto Portfolio Safer

Diversification of crypto portfolio can significantly reduce risks in the crypto profile. It also deals with cryptocurrency companies. Many businesses in the sector are focusing on diversifying their portfolio. For instance, cryptocurrency companies are creating new cryptocurrencies. Many have payment integrators to buy cryptos with regular fiat money. Blockchain-as-a-Service (BAAS) works to develop the technology for better outsourcing. 

Identification of Gaps and Subsequent Reallocation

Investors should identify gaps in their portfolios in the digital economy. They should analyze what they are missing, and whether they can invest in a single blockchain or not. The analysis should also include whether there are any notable gaps in the portfolio where a coin was excluded without strong reasons. Subsequent reallocation may include some portions of the coins that occupy the portfolio and buy coins that are missing. For instance, traders can convert a portion of their Ethereum holdings into Avalanche, Cardano, and Solana. 

Also Read-  Advantages of Crypto Payment Systems

Conclusion

There are several ways of diversifying cryptocurrency portfolios. It is in the best interests of investors to rationally diversify their portfolios and reduce risks as much as possible. Such portfolios may yield better returns than homogeneous portfolios. However, there are no uniform conventions in diversification and no simple straightjacket solution to diverse problems. Moreover, the needs of one investor may not match with others. In light of these vast differences, it is advisable to take expert opinions before investing in cryptos for better suitability.