Much like traditional stock portfolios, crypto portfolios can too be balanced to ensure a spread of returns and risks over the asset class. Building a diversified cryptocurrency portfolio can be done in many ways, however, in this article, we will be exploring a general approach that market participants can use to build their own.
From thoughtful diversification to asset allocation to buying your cryptocurrencies, the road to building a balanced crypto portfolio is not a complicated one. It will require some upkeep though, so be sure to factor in that you will need to balance your portfolio regularly.
Starting with the basics, a cryptocurrency portfolio is a collection of varied cryptocurrencies held by an individual (these portfolios hold one asset class, while others can hold multiple asset classes and would require further asset allocation).
Some users also choose to use a third-party tracker which calculates the portfolio’s holdings and profits. A balanced portfolio will have a collection of coins, products, and tokens, each with its own risks and rewards.
It should have a mixture of high and low-market-cap coins and might look something like this: 35% Bitcoin, 10% Ethereum, 25% stablecoins, 15% NFTs, and 15% altcoins (this is an example based on the current climate of the cryptocurrency market and not financial advice).
The 5 main types of cryptocurrencies
Before we start building our portfolios, let’s begin with understanding the 5 main categories that can be found in the cryptocurrency market today.
Most of the cryptocurrencies on the market at the moment will fall into these options.
Payment focused
Consider these the original first-generation cryptocurrencies, starting of course with Bitcoin. Many earlier projects were designed as systems of transferring value, take for example Ripple (XRP), Litecoin (LTC), and Bitcoin Cash (BCH).
These types of coins typically have a high market cap.
Stablecoins
This category refers to all coins that are pegged to a fiat currency and commodity. These coins naturally bypass any volatility, ensuring a stable anchor in your portfolio and a safe haven for when the markets experience a dip.
While they might seem to represent more traditional assets, stablecoins provide a valuable contribution to the crypto ecosystem.
Examples include PAX Gold (PAXG) which is pegged to the price of gold, while options like Tether (USDT) and USD Coin (USDC) are pegged to the US dollar.
Utility tokens
Utility tokens are unique to their ecosystems and generally offer a product or service. This could come in the form of a coin used to pay transaction fees on a network, or a coin created to launch a crowdfunding initiative.
Examples include coins found on dapp and smart contract development platforms, Ethereum (ETH), and Binance Coin (BNB).
Security tokens
Much like traditional securities in the stock market, security tokens can take on many forms.
These digital forms of traditional securities have been integrated with blockchain technology and span across three categories: equities, debt, and a hybrid of debt and equity. This can range from representing a bond issued by a project, equity in a company, or even voting rights.
Governance tokens
Governance tokens offer holders voting powers and a share of the project’s revenue. Similar to utility tokens, the value of a governance token directly relates to the success of the underlying project. Examples include Uniswap (UNI) and PancakeSwap (CAKE).
How to build a balanced crypto portfolio
When it comes to building a well-balanced crypto portfolio there are plenty of different schools of thought. We encourage you to do your own research and ultimately go with what feels right, however, here are several common themes to pick from.
- Diversify risk
Ensure your crypto portfolio has an adequate amount of risk tolerance by incorporating high, medium, and low-risk coin options, portioned appropriately.
It’s important to first establish what level of risk you are willing to take, and plan your portfolio accordingly.
- Include stablecoins
While these aren’t associated with wild gains, stablecoins help to provide your portfolio with liquidity and are key to many DeFi dapps.
They also allow traders to quickly and easily exit a position or lock in gains whether in a bear market or a bull market.
- Monitor the market
Ensure that you are checking in to see what is happening in the market regularly and adjusting your crypto portfolio to best manage this.
Crypto markets can still be very volatile, so ensure that your trading decisions reflect what is happening.
- Monitor your emotions
This might be one of the biggest overseen aspects of trading but ensure that you have a grip on your emotions as they can play an integral part in your decision-making.
Fear and greed are strong contenders when it comes to making logical trading decisions, make sure that these are not influencing any of your trades.
Don't let greed interfere, changing potential big gains to huge losses. Things can go terribly wrong when emotions are behind the wheel of trading decisions.
- DYOR
We cannot stress it enough - always do your own research when exploring the cryptocurrency market. Never engage in a project that you cannot fully explain to another trader. Buying cryptocurrencies requires a substantial amount of due diligence.
While there is value in taking advice from a strong trader, ensure that you do your own vetting of the project before blindly trusting a stranger, this is your own money after all.
- Only spend what you’re willing to lose
As a golden rule of thumb when it comes to navigating any market, only ever spend what you’re willing to lose.
If you’ve made trading decisions that are causing you sleepless nights, consider a different approach, and ensure that should something go wrong that you have the financial means to stay standing. Your overall portfolio should be correctly balanced in order to ensure you can have rest-filled nights.
How to use a portfolio tracker
While typically used for short-term and day traders, trackers can also provide value to long-term market participants. Trackers provide a reliable way of monitoring the performance of your low, medium, and high-risk endeavors.
Crypto trackers also allow users to measure their results across several blockchains and wallets in real-time, allowing one to directly measure the success or losses of their crypto financial products.
Portfolios typically involve holding multiple coins across various blockchains, so finding a compatible and suitable portfolio tracker makes sense.
First, you’ll need to select a good portfolio tracker that best suits your needs. Below we’ve outlined the top crypto portfolio trackers, although it's best to get a feel for the platform before diving in.
For instance, Pionex is better suited to high-volume users while Delta is better suited to beginners. See our selection below of top options on the market at the moment.
- CoinMarketCap
- One of the most used sources of information in the crypto space, CoinMarketCap also provides tracking functionality. Users can enter their coins, what price they were bought at, and monitor their progress.
- Pionex
- Favored to high-volume users, Pionex provides a more advanced option when it comes to tracking your crypto portfolio.
- CoinGecko
- Most commonly known as a data aggregator, CoinGecko also allows users to track over 1,000 coins across its mobile and desktop crypto trackers.
- Delta
- Delta not only provides a very user-friendly crypto tracker, it also allows users to track a wide range of assets including fiat currencies, stocks, bonds, futures, and ETFs.
Aside from the look and feel, other factors to look out for are safety and security and whether it supports the wallet and coins that you’ve purchased.
Building your crypto portfolio manually
When you’re ready to start building your well-balanced crypto portfolio, you will need to find a reliable platform and wallet on which to do so. Ensure you stick to a regulated exchange and that the security behind the wallet you choose is of high standards. The Tap mobile app offers a secure and convenient platform through which users can buy, sell, trade, and store a wide range of cryptocurrencies. Next, you will need to decide on which coins you'd like to purchase, ensuring that you allocate your capital strategically with appropriate weightings.
While conducting your own research is crucial, it's also wise to consider consulting with a licensed financial advisor before proceeding with building your portfolio. A professional advisor can offer valuable insights and guidance tailored to your financial situation and investment goals, helping you navigate the complexities of the cryptocurrency market and make informed decisions.
Remember, understanding what crypto is and conducting thorough research on individual coins are essential steps before investing any money. By combining your own research with expert advice, you can build a crypto portfolio that aligns with your objectives and risk tolerance."
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