Until a couple weeks ago, I did a horrible job at diversifying my cryptocurrency portfolio. I was 100% invested in Ether. It’s true that this move played out well, and I still strongly believe in the tech behind Ethereum. But it wasn’t smart.
Anyways, one day I woke up, checked the Ether price and saw that the value of my investment had fallen by 15 percent overnight. I wasn’t worried, this is a normal market fluctuation in the crypto space.
However, in that moment I realized what a novice move it was to go “all in” on a single crypto asset. Yes, Ethereum’s tech is amazing. Yes, it has been a great investment so far.
But what if something unexpected happens?
… so I decided to diversify my portfolio.
When to diversify a cryptocurrency portfolio?
It probably makes little sense to diversify a 100 USD cryptocurrency portfolio. If you don’t have more than 400 USD available I highly suggest to pick maximally two different coins that you properly researched and where you see growth potential. Don’t dilute your capital by buying 40 USD stakes in many different coins in the hope of hitting gold on one or two of them. Simply not worth it.
However, even if you only start with 100 USD but you invest them wisely, your stake might be worth a lot more in the future. If you had invested 100 USD in Ether in Summer 2016, your investment would be worth 2860 USD just one year later. If something similar happens to you (I hope it does), you should consider divesting a portion of your holdings.
What to diversify a cryptocurrency portfolio in?
Personally, my cryptocurrency portfolio is made up of 3 chunks:
- The safe stake (60%)
- The interesting-but-risky stake (30%)
- The ICO (gambling) stake (10%)
My safe stake is made up of Ether and Bitcoin. Both are a no-brainer in every cryptocurrency portfolio. Combined, they have a market capitalization of around 70 Billion USD (at the time I’m writing this), and they are very likely to be here to stay. It’s completely up to you how much ETH and how much BTC you have in your safe stake.
It’s important to keep in mind that what I call “safe stake” is obviously not safe. But relative to other cryptocurrencies, a clear upward trend and moderate stability can be observed in both candidates.
My interesting-but-risky stake is made up of a couple altcoins and some ethereum-based-tokens that I think might see some growth in the coming year or two. I aim to invest in tokens or cryptocurrencies that have a market cap of less than 300 million USD.
And finally, my ICO (gambling) stake is focused exclusively on high risk and speculative tokens I purchased through initial coin offerings.
It is extremely important to keep your portfolio constantly updated. What was a good investment one month ago, might not be such a good one today anymore.
In order to react quickly enough, you need to stay informed. One of the best ways of doing so is by subscribing to a weekly newsletter like the one of my friend Spencer at Cryptobuzz. I highly recommend you to check it out if you haven’t yet.
That’s all for today!