What coins should I put in my wallet? Maybe I should expose myself less to the BTC? How do I diversify my crypto portfolio?
Have you ever asked yourself these questions? Well that’s exactly what we’re going to talk about today!
Disclaimer: Our content is intended to be used and must be used for informational purposes only. It is very important to do your own research and analysis before making any investment based on your personal circumstances.
What is diversification in crypto?
When we talk about diversification, it’s simply a question of not being exposed to a single asset and in this case for the cryptos market, it’s often Bitcoin. One can reduce one’s exposure to a single asset by adopting the portfolio strategy dear to the classic market. This consists in buying several different assets with or without the same weighting within the portfolio.
The other way to diversify in the cryptos market is to vary the sources of income. Indeed, there are several ways to make one’s capital work such as investment, trading, stacking or farming on DeFi platforms.
This is perhaps the simplest question we have answered on this blog! Indeed, the main reason for diversification is simply to reduce the risk linked to a particular asset.
To use our analogy with the classical market, if we put all our capital on one share and the company goes bankrupt, we end up with a colossal or even total loss. If, on the other hand, we have divided our capital into 20 different shares, which are themselves diversified in relation to business sectors, our risk of ruin in the event of the bankruptcy of an isolated company becomes almost nil.
It’s the same for the cryptos market, if we invest all our capital in a project and it fails to prove its usefulness to the market, we will end up with a huge loss as well.
How can you diversify your portfolio?
As discussed above, the easiest way to diversify is to have exposure to several assets. There are two ways to do this: Build your portfolio yourself or buy an index such as ALTPERP on FTX. There are also other ways to reduce your exposure, such as stacking or trading.
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Building a balanced portfolio yourself is not the simplest solution. Indeed, it requires skills in fundamental analysis in order to select the best projects.
To analyze a project, you will have to assess the level of the team. If the CEO or the founding members have already participated in a similar successful project, this will usually be a good point.
You will need to look at the potential value that the project will bring to the market. Does it stand out enough from the competition? If the answer is yes, this will also be a good point.
Buy an index
Buying an index will allow you to benefit from all the advantages of diversification, i.e. the reduction of specific risk, without having to go through all the steps mentioned above.
It is therefore an ideal solution for those of you who do not yet have the fundamental knowledge necessary to build a balanced portfolio.
The last way to limit the risk of exposure is to keep your capital in stablecoin/fiat and use it only for trading. You will therefore be exposed to the market only for the duration of your trade.
There are two solutions for this: Either you have the necessary skills and in this case you can trade manually or you use an automated trading solution such as 4C Trading’s SmartBots.
There are many ways to diversify, whether it is by varying modes of return such as stacking or trading. It is also possible to mix everything we have seen together with for example a part in BTC for investment, some stacked ETH and the rest on an automated trading strategy or not.
The most important thing is the respect of your investor profile in order not to take too much risk. Indeed, being constantly exposed to the market, even diversifying your capital on 20 different corners is not for everyone.
Nothing more to add, I wish you all an excellent week!