How to Build a Cryptocurrency Trading Portfolio
When you take the plunge into the tumultuous world of cryptocurrency trading, you will find that the sheer number of coins which are available can overwhelm you. From the thousands of coins and tokens available, how do you know which are the right ones to add to your portfolio?
Even though there are countless of approaches that can be applied when choosing coins, there are a few key strategies which can help you minimize the risk. In this article, we will be presenting a few pointers which you can follow when deciding to build your own crypto trading portfolio.
Diversify Across Market Caps
A great tactic for minimizing your downside risk when trading cryptos is to diversify your holdings over a broad range of market caps.
The market cap of a cryptocurrency is derived from its price multiplied by its circulating supply. Typically, the higher a market cap is, the less volatile the coin acts on the market. A well-diversified portfolio consists of a combination of large (>$5 billion), medium ($250 million to $5 billion), and low (<$250 million) market cap coins.
How you diversify among these classes depends on how well you tolerate risk. If you are not much of a gambler, a portfolio that which is made up mostly of large-cap coins may be more suitable for you.
When choosing coins, you should evaluate how well you fare with risk, as well as how much money you’re willing to lose.
Take into account the Industry
When creating your own your cryptocurrency portfolio you must also take into account the industry that each coin is targeting.
Spread Across Industries
Once again, it is a recommended tactic that you diversify as much as you can to mitigate risk. Because blockchain is still a developing technology, it is hard to predict which sectors will respond positively to this technology. To evade this risk, it’s suggested that you invest in coins that cater to different industries.
The most popular cryptocurrencies can be separated into a few distinct categories:
- Currencies– Examples: Bitcoin, Bitcoin Cash, Litecoin
- Dapp Platforms– Examples: Ethereum, NEO, EOS, Cardano, Lisk
- Financial/ Remittance– Examples: Ripple, Stellar, OmiseGO, Wanchain
- Privacy coins – Examples: Monero, DASH, Zcash
- Media- Examples: STEEM, BAT
Of course, there are many more categories, and some of these categories intersect many coins, but these are the main ones. The idea behind this strategy is that if a category fails to gain any traction, you will not end up losing all your investment.
Invest more in Your Favourite Industries
Even if you have invested in coins across a diverse set of industries, you can inject more capital in the industries you think have the most potential of succeeding.
Look for Underrated Coins with Potential
The best coins to include in your portfolio are often those that are not sought out that much by people at first. Sometimes it pays not to follow the herd.
But identifying coins that haven’t become popular yet requires a lot of time and devotion. It can take up to days, even weeks to scour whitepaper after whitepaper to find the ideal coin.
However, these one or two coins that can make a portfolio become a goldmine.
Here are a few real-life examples of coins that have turned out to be good investments:
- Early investors of AntShares (now NEO), now have nearly a 160,000% return on their investment.
- An investment in Bitquence (now Ethos) saw a return of 4,300%.
- Early investors in OmiseGO made a profit of 4,000%.
If you have the time to research and enough money to take the risk, the investment could really pay off in the long-run.
As you create your cryptocurrency trading portfolio, you’ll probably come across other tactics that you can also incorporate into your trading strategy. Furthermore, you’ll most likely end up trying out advice that wasn’t all that useful.
But that is part of the process of becoming a cryptocurrency trader, as trial and error are needed for an investor to find their own unique style that suits him.