How to Diversify Your Crypto Portfolio

Diversification has long been regarded as the most important aspect of long-term investment. While it doesn’t safeguard you from loss, it does safeguard you from total loss. If one of your investments dips in value, your other, better-performing investments will smooth out the volatility. Ideally, you need both high and low-risk shares in order to create a robust portfolio capable of weathering any storm.

This approach to investing isn’t limited to stocks and bonds; it’s also a key component of becoming a successful crypto investor. For your crypto endeavors to be lucrative, they must be diverse and consist of major cryptocurrencies, altcoins, stablecoins, NFTs, and other forms of investments. In this blog post, we’ll explore how to bring variety to your crypto portfolio.

Altcoins are key

Altcoins refer to any crypto that is not Bitcoin, hence why they’re referred to as “alternative coins”. So, coins like Ethereum, Doge, and Solana are all technically “altcoins”. However, in order to diversify your portfolio, you can’t simply invest in major altcoins such as Ethereum (although this is also important); instead, you need to also invest in up-and-coming coins that demonstrate a significant potential for growth.

By doing so, you can make serious economic gains. Up-and-coming coins - which are normally referred to as “grass coins” - are sold at a cheaper price than popular altcoins. Plus, should they gain more attention in the future, they can shoot up in price dramatically. So, these coins give you the potential to make significant gains through minor investments.

The further ahead of the curve you are, the bigger the potential of your returns. According to CryptoNews Japan, the best time to invest in a cryptocurrency would be before it is listed on major crypto exchange sites. Crypto expert Hiroshi O. states that promising cryptocurrencies skyrocket in value as soon as they are added to an exchange site like Binance.

Once a coin appears on an exchange site, it becomes a lot more visible to crypto investors. It also helps to legitimize the coin, boosting investor confidence in it. This ultimately leads to an investment increase which drives up the value of the coin. In this scenario, those who invested before its listing could make some profit from the coins they bought.

Most popular altcoins started with low value before undergoing substantial growth to the benefit of early investors. For example, Solana, Ethereum, and Binance Coin all started low and today stand as some of the most prominent coins on the market.

Investing in up-and-coming altcoins can also prove beneficial in the following ways:

Community incentives

Early adopters of coins are often granted special influence over the direction of the digital currencies. For example, early investors can converse and collaborate with other investors to come up with new use cases and design features for the coin. By also contributing towards the coin's development, early investors can also be rewarded with exclusive bonuses and extra coins, which could make them money in the future.

Collaboration benefits

Through collaboration with other crypto investors, you keep yourself in the loop and up-to-date with new investment opportunities. The other investors are likely already heavily involved in crypto and will be able to provide you with tip-offs on other promising altcoins - allowing you diversify and strengthen your portfolio even further.

Cutting-edge technology

The newer the coin, the better the features that come with it. New altcoins typically come with cutting-edge technological features such as fast withdrawals and enhanced privacy. Not only do these features make them more beneficial to the investor, but they could potentially make them more in demand once they’re listed on crypto exchange sites.

Small investments

You don’t need to invest a significant amount of emerging altcoins. In fact, you could get away with only investing a small amount while still giving yourself a chance to profit from the crypto. As soon as the coin starts gaining traction, your small investment can inflate and become a significant one.

Invest in major coins, too

A portfolio that consists solely of up-and-coming altcoins is not a diverse one. Despite how well-established they are, it’s vital that you still invest in major cryptocurrencies such as Bitcoin and Ethereum. These coin types have proven themselves stable despite the volatile nature of the crypto market.

Bitcoin, which was first minted in 2009, has remained the most valuable coin throughout its entire existence. While it has had its ups and downs, it has acted as a reliable anchor for many crypto investors over the last 15 years. It’s proving particularly promising at the moment, having reached its all-time peak in March this year when it was valued at over $73,000.

Plus, the likes of Bitcoin have been adopted across various sectors, such as tech and finance. This helps legitimize these coins and suggests that they’ll remain prominent in the long term. Given that Bitcoin and Ethereum are now popularly used as a payment method, the liquidity of these coins is better maintained. They’re not subject to the same price swings that lesser-known coins might be, making them a more stable investment type.

These coins come with a proven track record, making them ideal for fulfilling the ‘low-risk’ side of your crypto portfolio.

To keep your portfolio well-balanced, it would be a good idea to invest in all of the major cryptocurrencies. So, having money in Bitcoin, Ethereum, Tether, Solana, and so on would keep your portfolio protected against all possible outcomes. This would mean that in the event of Bitcoin significantly dropping in value and Ethereum taking the number one spot, your portfolio won’t be greatly impacted.

To further stabilize your portfolio, you should also reserve space for stablecoins. The likes of USDC and USDT can provide anchorage against crypto market downturns.

Blockchain diversification

Cryptocurrencies that are built on the same blockchain often fluctuate in sync - i.e., they rise and fall in value at the same time. To give you an example, both Ethereum, Curve, and Uniswap are all based on the Ethereum blockchain. This means that all three coins tend to rise and fall in value concurrently. For this reason, your crypto portfolio must consist of cryptocurrencies that are pinned to alternative blockchains.

If your portfolio only consisted of coins that are based on the Ethereum blockchain, your whole portfolio would increase and drop in value at the same time, which isn’t what a balanced portfolio is supposed to do.

So, you should make sure that your cryptos are spread out evenly across the main blockchains, which include the following:

Ethereum
Cosmos
Solana
Polkadot
Avalanche
BNB Chain
Ripple
Tron
Polygon

When it comes to deciding which altcoins to invest in, be sure to pick one that’s based on a blockchain that your portfolio is currently lacking. For example, if you’ve only invested in one crypto that’s based on the BNB Chain, look for new altcoins that are based on this blockchain to improve the balance of your portfolio.

Industry diversification

Beyond blockchain diversification, you’ve also got to invest in different crypto industries. The most common cryptocurrency purpose is the execution of decentralized payments. Coins that are made for this industry include Bitcoin, Litecoin, and Dash. However, there are many other purposes that specific cryptocurrencies are minted for, which you should endevour to include in your portfolio.

For example, some cryptocurrencies have been devised for the video game world. Decentraland (MANA) is an Ethereum-based token that has been made for use within the Decentraland VR platform. You could also invest in coins that have been designed to be used on AR and AI platforms.

Some coins have been minted for no specific purpose other than being collectible. For example, meme coins, such as Dogecoin, have become a popular speculative investment option. Although many are started as a joke, they regularly become prominent cryptocurrencies with lots of people investing in them.

Just as blockchain diversification helps you stay afloat when one blockchain experiences a downturn, industry diversification helps you through periods of market volatility. Plus, it helps you to prepare for unexpected periods of growth. Video game-based cryptocurrencies may suddenly shoot up in value, and keeping a diverse portfolio would allow you to take full advantage of it.

Geographical diversification

There must also be some degree of geographical diversification in your crypto portfolio. By this, we mean that your chosen investments should not all be based in the same country. Instead, your investments should be based in the US, South America, Europe, Africa, Asia, and so on. This way, you can take advantage of international market trends and regional technological advancements.

In Europe, blockchain innovation is thriving, with many places now accepting cryptocurrency as a payment method. It would be worthwhile to study the crypto businesses that are currently emerging from Europe and invest in the ones that appear to be most promising.

Look for countries that have high crypto activity. For example, the UAE has the biggest percentage of cryptocurrency ownership at 25.3%. Once you’ve identified the nations with significant crypto activity, check the altcoins that are minted there and invest in them if they look promising.

Final thoughts

Crypto investing isn’t a straightforward process. If you want to do it right and actually profit from it, you must spend time organizing your investments and identifying new opportunities. You must regularly check on new altcoins and invest in the ones that you think hold the most promise. You should also check on your investments in major cryptocurrencies to ensure that you’ve invested an equal amount in each. On top of all that, you must practice blockchain, industry, and geographical diversification. By doing so, you ensure that your portfolio is fully protected.