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With the rise of cryptocurrency in Africa and around the globe, it is important to educate and inform people about investment tips and guides. So, in this article, we’ll be discussing an important crypto investment tip, diversification, in five ways to diversify your crypto portfolio.
What is Crypto Diversification?
According to Binance Academy, In the context of financial markets, diversification refers to allocating capital to different financial instruments within and across asset classes. The main goal is to reduce the overall risks that may arise from holding a single asset class, such as a stock, bond, commodity, or cryptocurrency.
By diversifying your portfolio, you can enjoy both the stability and potential of established coins like Bitcoin and Ethereum.
A simple way to put it is don’t put all your eggs in one basket.
Read Also: 5 WAYS TO MANAGE YOUR CRYPTO PORTFOLIO
5 Ways to Diversify Your Crypto Portfolio
1. Audit Your Current Crypto Portfolio:
To start off, you have to look at what your current crypto portfolio is like and see which spaces to fill in. By reviewing your portfolio, you are able to easily identify ways to diversify your portfolio because you know what is lacking
2. Identify Gaps In Your Portfolio:
Take time out to analyze your portfolio with the overall digital economy. Review the crypto sectors you are missing (NFTs, DeFi, Web3, smart contracts, Stablecoins, etc), or if you are too heavily invested in a single blockchain ecosystem. Are you missing any significant coins? Take notes of gaps in your portfolio and improve on them.
3. Diversify By Crypto Coin Type:
Different crypto coins have various use cases and purposes. It is a basic fact that cryptocurrencies are used as a means of exchange, but they are not limited to transactions in exchange for goods and services. Since Bitcoin has produced outsized returns for investors, it can also be used as a store of value or a means of preserving and growing wealth.
Ethereum is the second-largest cryptocurrency and has smart-contract functionality that aids, the creation of digital programs. It is an investment in a blockchain network where decentralized applications, or dApps, can be built.
Crypto investors can also allot some of their portfolios to stablecoins. These are digital currencies linked to a specific asset like a national currency or a precious metal e.g gold.
4. Diversify by Sector:
As earlier mentioned, crypto is not just about trading, there are different aspects when it comes to diversifying your crypto portfolio, and diversifying by sector is part of it. We have different types of sectors such as NFTs (Non-Fungible Tokens).
Non-fungible tokens (NFTs) are unique digital tokens that can serve as a certificate of authenticity and proof of your right to own and display the art on your digital wallet. They are an example of a thriving crypto industry you can invest in.
Read More: 3 BEGINNER STEPS REQUIRED TO INVEST IN NFTS
5. Rebalance Your Portfolio Regularly:
Sustaining a diversified crypto portfolio requires regular reallocations. Over a period of time, some of your crypto coins will rise and some will decline. Asides from crypto coins, other sectors can also be affected over time.
Reallocating your portfolio regularly allows you to switch things around to maintain a well-balanced portfolio.
In the crypto world, it’s not rosy all the time. Due to the volatility of crypto, diversification is significant.
To get the most out of your investment, you mustn’t rely on one crypto coin, sector, or industry in the crypto world.
Get the feel of everything and map out the best strategies for your investment.