× #message#
×

Warning

How to build a balanced crypto portfolio

Just like traditional investment portfolios containing assets such as stocks, bonds, commodities and real estate, a crypto portfolio must be equally as diversified and balanced. The main reason behind building a balanced portfolio is to mitigate risk. A portfolio that has invested most of its capital in just one or two cryptocurrencies ties the investment to the success or failure of these assets; in other words, the eggs are all in one basket.

 

Given the volatility of the crypto market, the likelihood of losses can be high. Even diversification is not a surefire guarantee of a winning portfolio, but it does set investors up for a much better chance of positive returns. In this article, we take a look at some key tips and strategies to help build a balanced crypto portfolio and why it’s so important to do so. 


 

What does a balanced crypto portfolio look like?

Achieving a balanced crypto portfolio involves several strategies, each aimed at mitigating risk and maximizing potential profits. One approach is to invest in market leaders, such as Bitcoin or Ether, and allocate funds among the top cryptocurrencies by market cap, typically the top 10 or 20. This method offers relative stability compared to less popular coins, though given the nature of the crypto market, volatility is still an important factor to bear in mind. 

 

The primary advantage of a balanced crypto portfolio lies in risk reduction so that no single cryptocurrency's success or failure dictates its overall performance. Diversification also increases the likelihood of benefiting from the positive performance of market outliers, which could include meme coins, such as Dogecoin, and other lesser-known altcoins. However, managing such a portfolio demands time and effort and requires a lot of research and follow-up. It’s also important to review your portfolio every now and again, especially when there is a major shift in the market, and reshuffling asset allocation if necessary. 


 

Diversification by industry

Diversifying a crypto portfolio by industry involves strategically investing in cryptocurrencies across various sectors within the crypto market. This method requires an in-depth understanding of different crypto projects but can offer significant rewards when done effectively. By spreading investments across different industries or sectors, such as decentralized finance (DeFi), borrowing/lending platforms, artificial intelligence (AI), non-fungible tokens (NFTs), and gaming, investors can mitigate the risk associated with sector-specific downturns. What’s more, by learning how to identify promising projects that could capture a significant market share within their respective sectors early on, investors can potentially realize substantial long-term returns. 


 

Bitcoin exchange-traded funds (ETFs)

More traditional investors looking to include cryptocurrencies in their portfolio may choose to invest in a Bitcoin exchange-traded fund. As of January 2024, 11 Bitcoin exchange-traded funds are on the market. The advantage of including one or more of these funds in a balanced portfolio is the detachment from direct exposure to the volatility of the crypto market. Investors gain exposure to Bitcoin’s price movements without purchasing the cryptocurrency outright. This option can be particularly attractive to investors who are new to crypto. Some Bitcoin ETFs include stocks as well as Bitcoin futures, which helps create an overall balanced portfolio.

 

To learn more and start trading with Limitlex, visit limitlex.com.


 

latest posts

bitcoin

CME Group plans to launch Bitcoin trading

The world of cryptocurrency and digital assets is continuing to expand, crypto adoption is rising, and its integration into real-world applications such as payment processes is increasingly prevalent. Whilst many crypto natives would prefer these digital currencies to remain as decentralized as possible, major financial institutions are making significant efforts to integrate cryptocurrencies into their portfolios. One such example is CME Group, the world's largest futures exchange, which ha
Read more
ETF

Why ETFs are a great way to get into crypto

ETFs are a great way to get into crypto for traditional investors. For many crypto first-timers, the ins and outs of exchanges, wallets, and market movements can be overwhelming. Luckily, as of 2024, US investors can now look forward to adding two kinds of spot crypto ETFs to their portfolio. In January, the Securities and Exchange Commission (SEC) approved 11 spot Bitcoin ETFs, followed in May by a rule change approved by the SEC allowing Ethereum ETFs to be listed on a series of US exchanges,
Read more
ETF

What does the Ethereum ETF approval mean for traders?

On the 23rd of May 2024, the US Securities and Exchange Commission’s (SEC) the Ethereum ETF approval to the expectant public. While the market had ample time to prepare for the launch of the first set of Bitcoin ETFs, the approval of a rule change affecting their Ethereum counterparts came as somewhat of a surprise. Nevertheless, the ETFs will not be listed immediately, given that each product needs to be approved individually by the SEC. This window will give traders time to redistribute
Read more
BIDS

The bid price is the highest price that a particular buyer is willing to pay for a specific product or service. In the context of financial/crypto markets, it is the value buyers offer for an asset, such as a commodity, security or cryptocurrency.

Read more

ASKS

The asking price is the minimum price that an individual would be willing to sell their asset, or the minimum amount that they want to receive in return for the unit(s) they are parting with.

Read more

MY OPEN ORDERS

Here you can see all of your open orders. To cancel an open order, just click the ‘X’ symbol next to it.

Read more

LIMIT ORDER

Limit order gives you the power to set a specific price at which you would like to buy or sell the desired amount of cryptocurrency.

Read more

MARKET ORDER

A market order is an order type that enables you to buy or sell at the best available market price.

Read more

STOP LOSS LIMIT

A Stop Loss Limit order is designed to limit your loss on a cryptocurrency position. A Stop Loss Limit order can be placed to buy or sell a specific cryptocurrency at your entered price (a limit order) once that cryptocurrency reaches a certain price.

Read more

TAKE PROFIT LIMIT

A take profit limit order is an order put in place by traders to maximize their profits and protect their profits on positions. A take profit limit order allows you (a trader) to set your custom made Buy or Sell order. You have to set two prices - the Trigger Price and the buy/sell Price.

Read more