The cryptocurrency market is an exciting new area for investors. At the same time, it is important to control your income and avoid losses. The cryptocurrency is characterized by high volatility, it is easy to lose money due to a sharp drop in the rate. It is necessary to use an investment portfolio from cryptocurrencies. Competent diversification of digital assets helps to distribute risks and control income.
The concept of an investment portfolio refers not only to digital assets, it is a set of tools for capital accumulation:
- fiat money;
- real estate;
- shares, bonds and other securities;
- other assets.
Diversification of digital assets involves investing in different types of cryptocurrencies. The investment portfolio provides convenient management of potential income and losses, eliminates potential risks.
- technical problems of protocols;
- poor quality implementation of the token;
- changes in the legal status of the coin;
- political changes;
- other possible nuances affecting the cryptocurrency rate.
Features of the formation of an investment portfolio
Bitcoin is the main cryptocurrency. There are also altcoins that differ technically or functionally (different mechanisms for checking consensus, the ability to implement smart contracts, etc.). Bitcoin’s capitalization is comparable to the total value of all altcoins. However, this does not mean at all the great attractiveness of the # 1 cryptocurrency as an investment instrument. Analysis of some altcoins allows you to choose the most attractive assets for the formation of an investment portfolio.
Basic formation rules:
- diversification between technologies;
- distribution of risks between assets in the portfolio;
- focus on a strong cryptocurrency with less risk (do not take risks with an eye to more profit).
The formation of a cryptocurrency investment portfolio begins with the selection of coins. It is necessary to assess the potential of the cryptocurrency, for this to study the characteristics of the coin:
- capitalization of a cryptocurrency asset – the value of all tokens issued during the lifetime of the project;
- scope of application in real life – the use of the project blockchain for different purposes, the ability to create smart contracts, other usefulness;
- blockchain implementation technology;
- development team – experience, financial support, investments are assessed;
- the market in which the project is used;
- other parameters that can influence decision making.
All parameters are important, however, according to the existing opinion, cryptocurrency capitalization reflects the level of risk. The principle is used – the higher the total value of the coin, the lower the risks of investing in the token.
Capitalization testifies to the popularity of cryptocurrency. For example, the total cost of Bitcoin is about $900 billion, and the next asset in terms of capitalization Ethereum is almost 2 times less – $410 billion.At the same time, the high volatility of the cryptocurrency affects the level of capitalization, the fall in the rate strongly affects the total cost of tokens.
Depending on capitalization, cryptocurrency can be conditionally divided into 3 groups:
- high – over $10 billion;
- average – the value of assets from $1 billion to $10 billion;
- low – capitalization less than $1 billion.
Cryptocurrency from the first group is the safest as an investment instrument, the risks are minimal. In this case, serious fluctuations in the price of an asset are possible under the influence of various factors.
Low-cap assets are high-risk and highly sensitive to market sentiment. The choice of a cryptocurrency for investment from this group of assets depends on the investor’s tolerance to potential risks.
Another criterion for selection is the diversification of assets by type. The investor must determine the prospects of the technology, its importance for a particular sphere of life. Moreover, the capitalization of such an asset does not have to be high.
It is also necessary to study the problems of the blockchain on which the coin is implemented, ways to solve them. If problems are solved, the community or founders are engaged in strengthening the technology (scaling issues, transaction speed, etc.), the demand for cryptocurrency is higher.
The real support of the cryptocurrency investment portfolio is stablecoin staking. The secured assets provide a security guarantee for a portion of the investment.
Tools for creating a cryptocurrency investment portfolio
To store cryptocurrency, you can use:
- cryptocurrency wallets – there is a choice between software and hardware storages, including multicurrency;
- crypto-exchanges – less secure option, there is a risk of hacker attacks.
At a certain stage, it will become difficult to control the rates of cryptocurrencies included in the portfolio, to monitor the status of assets. There are special programs – trackers that allow you to monitor and manage digital assets, and perform rebalancing. Trackers have links with popular cryptocurrency exchanges and wallets. Popular resources include:
- CMA and others.
Despite the high popularity of digital assets, investing in cryptocurrency is a risky undertaking. Volatility can cancel out profits in a matter of moments. A thorough market research, analysis of popular coins by various parameters, a balanced approach to risk assessment is required.
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