Crypto Portfolio Diversification with Examples


Learn how to achieve a profitable crypto portfolio diversification, the best ways to do so and how to minimize risks to get the best long-term returns.

Many people have turned to cryptocurrencies as their investment option with the hope of making lucrative earnings from the digital market. Although crypto trading has been successful for most, it is not without its challenges. 

Cryptocurrency investing is a highly speculative endeavor, and as an investor, you should always be prepared to lose money at all times. However, you also stand to earn big profits in this volatile and fast-moving market by diversifying your crypto portfolio.

In this blog post, we discuss the various diversification strategies you can employ to create a robust and profitable crypto portfolio by answering the following questions:

  • What is the importance of crypto diversification?
  • Why should I diversify my crypto portfolio?
  • How can I diversify my crypto portfolio?
  • What are the top crypto diversification strategies?
  • What are some crypto portfolio examples?
  • What are the benefits of diversifying my crypto portfolio?
  • What are the drawbacks of diversifying my crypto portfolio?
  • Conclusion

What Is The Importance Of Crypto Diversification?

The main reason you should diversify your cryptocurrency portfolio is to spread your money across different investments to mitigate the loss you are likely to suffer by investing in only one portfolio. 

Like any other investment, cryptocurrency values appreciate and depreciate depending on varying market trends and positions. Investing in only one cryptocurrency exposes you to significant investment losses if and when the markets crash.

Why Should I Diversify My Crypto Portfolio?

When you diversify your portfolio, you can take advantage of the available cryptocurrencies at different values. The price of a single cryptocurrency can fluctuate significantly from day to day. While one cryptocurrency loses value, another one gains. 

As an investor, you want to take advantage of the gains, no matter how small, and minimize your losses as much as possible. With a diverse crypto portfolio, you can cover the loss on one portfolio with the gains earned on another and keep your investment and profits intact.

How Can I Diversify My Crypto Portfolio? 

As a long-term crypto investor, you’ll need to devise a definite plan for crypto diversification. You want to ensure that your portfolio has a variety of cryptocurrencies with different levels of risk and investment rewards. 

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You can consider diversifying your crypto assets by investing in order of the asset’s risk versus reward potentials. As such, you can allocate a higher portion of your investments in more stable cryptos, then spread out the rest of your investment in high-risk-high-return assets to get the best of both sides.

Top Crypto Diversification Strategies

Some of the tried-and-tested strategies you can employ to ensure you create a profitable crypto diversification portfolio include

Diversifying The Type Of Cryptocurrency

You can diversify your portfolio by choosing different cryptocurrencies available on a platform. For example, you can choose whether to invest in coins or tokens. If you choose coins, you can further diversify your investment between Bitcoin and altcoins.

When choosing the coins or tokens to invest in, you can consider their current prices, how they have performed in the market previously and how they are expected to perform in the future. 

Diversifying By Industry

Diversifying your crypto portfolio by industry will help you avoid market fluctuations and ensure that your investments are profitable. Some industries offering cryptocurrency opportunities include banking and financial services, healthcare, manufacturing, telecommunication, and many more.

If you opt for an industry-specific strategy, consider the market capitalization of the companies offering cryptocurrency opportunities. 

Time Diversification

Timing is a strategy that many investors adopt at one time or the other. It involves diversifying your crypto assets only at times when the market is favorable to avoid making losses. Time diversification requires you to have current crypto market news at your fingertips to select the suitable interval to make a move.

Diversify Your Crypto By Geography

You can choose to invest your crypto in projects from different places worldwide. Some countries have lenient crypto trading regulations, while others don’t tax crypto trading. Diversifying your crypto to such locations exposes you to better profit margins than investing in only one area.

Buying A Crypto Fund

A fund is a large pool of cryptocurrencies managed by professionals who specialize in trading them. While buying into a fund relieves you of some controls on your crypto portfolio, you stand to make more profits by allowing professionals to invest on your behalf. This strategy works well if you have limited trading expertise or don’t have time to manage your portfolio.

 ETFs

You can diversify your cryptocurrency through ETFs. ETFs, also known as exchange-traded funds, are a group of assets you can invest in to allow you to trade on an exchange. A cryptocurrency ETF tracks the performance of a single crypto index or basket of indices or assets on an exchange platform to earn you a profit on your portfolio. 

Crypto Portfolio Examples

You can consider diversifying your crypto portfolio by allocating 80% of your investment to stable but lower reward assets and 20% to assets with a higher risk and high return potential. An example of a good 80/20 crypto portfolio allocation in 2022 would be:

  • Bitcoin (BTC) – 40%
  • Ethereum (ETH) – 30%
  • Binance Coin – 5%
  • Cardano (ADA) – 5%
  • Solana (SOL)- 5%
  • Chainlink (LINK)- 3%
  • Sandbox (SAND) – 3%
  • ApeCoin (APE) – 3%
  • Polygon (MATIC) – 2.5%
  • Tron (TRX) – 2.5%
  • Cosmos (ATOM) – 2.5%
  • Shiba Inu (SHIB) – 1%

You can also consider a 40/30/30, with 40% allocation for safe cryptos, 30% to average risk-average return cryptos, and 30% going to highest risk with a high return potential cryptos. A good example would be:

  • Bitcoin (BTC) – 25%
  • Ethereum (ETH) – 15%
  • Binance Coin – 7.5%
  • Cardano (ADA) – 10%
  • Solana (SOL) – 10%
  • Chainlink (LINK)- 5%
  • Sandbox (SAND) – 10% 
  • ApeCoin (APE) – 5%
  • Polygon (MATIC) – 2.5%
  • Tron (TRX) – 2.5%
  • Cosmos (ATOM) – 5%
  • Shiba Inu (SHIB) -2.5%

What Are The Benefits Of Crypto Diversification?

  • High returns for lower risk
  • Less investment volatility
  • Minimal portfolio fluctuations

What Are The Drawbacks Of Crypto Portfolio Diversification?

  • Possibility of low returns on investment
  • Possibility of increased tax liabilities

Conclusion

As a long-term crypto investor, you want to consider every possible way to avoid loss and pocket all profits, no matter how small. Diversifying your cryptocurrency portfolio allows you to prepare for the highs and lows of the crypto market well in advance. Try a crypto diversification strategy that matches your investment goals today.

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Haru Invest is a digital asset investment platform that offers an interest-bearing crypto deposit service and fund service. 

Unlike other similar CeFi platforms out there, Haru Invest does not operate in the lending model. Instead, Haru Invest invests crypto assets with high frequency trading, exploiting the gaps between crypto spot or derivative exchanges. With this different way of generating returns, Haru Invest has been consistently paying out earnings with minimized risk. 

Learn more: HFT trading

Some of the strategies that Haru Invest works with include :

  • Arbitrage Trading that leverages BTC and ETH price gap between crypto exchanges
  • Market Neutral Strategy based on the price stability mechanism at futures exchange
  • Spread Trading that focuses on the volatility of BTC/ ETH futures contract

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Disclaimer

All investment strategies and investments involve risk of loss. Nothing contained in this website should be construed as investment advice. Any reference to an investment’s past or potential performance is not, and should not be construed as, a recommendation or as a guarantee of any specific outcome or profit.
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