If you’ve been looking into cryptocurrencies, and if you’ve invested in some of these coins already, you’ll likely be aware of how volatile the marketplace is. When you’re investing, whether it’s in stocks, currencies, bonds, or crypto, you’ll want to make sure you’re diversifying your investments enough so that if one particular market plummets in value, you’ve got other investments to fall back on. Managing your cryptocurrency portfolio effectively isn’t the easiest task, so we’ve put together some reasons as to why this is important and how you can best achieve a balanced portfolio.
Why Should You Diversify?
You may have chosen a specific cryptocurrency to start investing in and feel a certain loyalty to that coin, but holding one particular coin is not wise, even if it is Bitcoin, which is continuing to stay strong in the marketplace despite some knocks. The cryptocurrency market is actually incredibly volatile, meaning high and low spikes in value are common, but while this can be very profitable, it can also lead to people losing a fair bit of money too. Not only that, but the volatility makes the marketplace hard to predict, which deters safer, low-risk investors from getting involved due to the fear of market crashes and plummeting value.
How To Balance Your Portfolio
To reduce your risk of disappointment in the event that one of the crypto coins you’ve invested in takes a sharp downturn in value, make sure you have other cryptocurrencies in your portfolio. Of course, a wise decision would be to diversify your entire investment portfolio, especially if you’re focusing on crypto, as the values of these coins often influence each other, especially Bitcoin. This major cryptocurrency is often a big influencer due to being the first, and also have the most secure network. You may find that some will trade their crypto coins such as Ethereum and Dogecoin for Bitcoin to benefit from some extra stability during uncertain times in the market. If you’d like to know how to exchange your ETH to BTC, check out Paxful’s helpful blog post. Of course, we would still highly recommend having a mix of low and high-risk investments, and that should really include some outside of the world of cryptocurrencies like stocks and even bonds, as this ensures that your entire investment portfolio will become more balanced.
Diversifying Your Investments To Identify The Big Gainers
Having a stake in many different cryptocurrencies may spread out your wealth and investing power, but it also allows you to get a better handle on any potential coins that might begin to outperform others. There are thousands of different cryptocurrencies in the marketplace now, most of which are trying to follow in the footsteps of Bitcoin, providing some form of benefit to the world, and this assigns an inherent value to those coins. As one of your investments begins to gain value, you could then sell off a portion of those coins, and reinvest the gains into more cryptocurrencies, growing your portfolio further and potentially investing in the next big cryptocurrency. Just remember that while the rewards for buying into this marketplace could be high, it’s also very risky, so invest wisely.