Introduction
Investing in cryptocurrency can be a very profitable venture, most especially right now that is being widely accepted in numerous industries. Thus, it's really wise to invest with it now mainly on coins that have already built its reputation in the digital space. Truly, it can be exciting, but it doesn't have to mean putting all your money into just one or a few coins.
Diversification plays an important role when you get involved in this market, it's like implying the old saying: "don't put all your eggs in one basket." So, if you currently own one or two types of cryptocurrencies, it might be wise to diversify your investments. Whereas, it involves spreading out your money across different assets, so if one investment fails or drops, you still have other assets you can hold steady and gain profits with. To know more about diversification and other Key Principles for Cryptocurrency Investment, let's discuss more in this guide.
Easy Ways to Spread Your Crypto Risk
Here, we have listed down all the possible and proven ways on how you can diversify your crypto portfolio effectively even as a beginner or an expert.
Mix up your cryptocurrencies
As mentioned, if you're into investing, don't focus on one crypto. Whereas, one of the easiest ways to diversify is by adding different cryptocurrencies to your portfolio. There are several ways on how you can do so and here are some ways:
- Large cap vs. small cap - It would be common that when investing in crypto you would usually go for the currencies that have a strong reputation in the market. So, if your portfolio mainly consists of large-cap cryptocurrencies like Bitcoin or Ethereum, consider adding some small-cap coins. For more advice on this, check out our Essential Tips for Smart Crypto Investing.
Most of the time, you would initially think that these small coins will add more risks, but that is not always the case, instead these newer coins often have more growth potential. On the other hand, if your budget is tight, you would probably opt for small and affordable coins, so to balance the risk, consider shelling out a capital to invest larger and more established coins.
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Different types of tokens - Cryptocurrencies aren't only coins, they come in various forms. These are stablecoins, the ones associated with traditional currencies; utility tokens, used in specific applications; governance tokens, allows holders to vote on project decisions. So, instead of just focusing on established coins, by adding other cryptocurrency forms in your portfolio, you're not just making it diverse, you will be able to capture different market movements as well.
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Explore various industries - The crypto world is wide. It does not only focus on one sector. There are tokens from numerous sectors like gaming, finance, health and more. To spread your risk, own tokens from different sectors as much as possible to add a new layer of diversity to your investments.
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Geographic Diversity - One downside of cryptocurrencies is that some countries don't allow any related transactions or ownership of it. On the other hand, these are more popular in specific regions. So, invest in tokens that are widely used in different countries that's widely legal. By doing so, if one region experiences a negative price swing, other investments may still perform well.
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Use different blockchain protocols - Cryptocurrencies operate on various blockchain systems. And each of these digital ledgers, has its own rules and technologies. So, to make a well-balanced portfolio, consider including coins that use different blockchains such as Bitcoins that use proof-of-work and Ethereum 2,0 that uses proof-of-stake.
Invest in tokenized assets
Tokenized assets are a newer concept that allows you to own a portion of real-world or digital items using blockchain technology. Here are some common types of tokenized assets:
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Real estate - Through tokenization you can actually invest in both physical properties and virtual real estate. This will help in diversifying your portfolio as it allows you to acquire fractional ownership, making it easier to invest in real estate without needing a large sum of money.
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Art - The same goes for artworks. You can both tokenize digital art and traditional artwork. Whereas, you can own a share of a famous painting or a digital piece that may appreciate in value.
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Music - There are platforms that allow investing in music rights. This means you can have a share of an artist's success. So, aside from diversifying your portfolio through it, you are actually supporting creators as well.
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Precious metals - Who would have thought that metals like gold, silver,, and others can be represented as tokens. Moreover, this offers a way to invest in physical assets without the need for storage or security concerns. Learn more about how to spot the next big crypto trend.
Invest in crypto-related companies
If you seek a way on how you can diversify without directly buying more cryptocurrencies, then you might as well consider investing in companies that operate within the crypto space. Now, this can be a much expensive method but her are some options:
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Mining companies - Mining is the primary method of the production of cryptocurrencies. Thus, investing with mining related companies will allow you to be an integral part of the ecosystem.
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Hardware wallets - Wallets are a necessity in the crypto world, in fact, it's required. These are firms that produce physical wallets for securely storing cryptocurrencies can be a solid investment, especially as more people seek to protect their assets.
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Custodians - These companies help store and manage digital assets securely, which is increasingly important in today's market. If you're considering getting into this market, you might be wondering How Much Should You Invest in Cryptocurrency?
Conclusion
There is no such thing as investments with no risks. If there are, it's probably a scam. Thus, weh you finally decide to invest with crypto, always manage your expectations and be prepared for the risks it's associated with. Nevertheless, when there's a risk, there's a reward at the other side. And one way to reap these rewards and minimize the risk is through diversifying your portfolio. By using different strategies to spread your investments, like the options provided in this guide, you can create a more balanced crypto portfolio that can withstand some of the market's ups and downs.
