At its core, investing in cryptocurrency markets is simple. But that doesn’t mean it is easy—just that the basic concepts necessary for success are as straightforward as traditional asset classes. Just like managing any other investment vehicle, you can improve your odds of achieving greater profitability as you amass a balanced collection of crypto assets.
A cryptocurrency portfolio is a collection of digital assets that aims to improve an investor’s risk-adjusted returns by diversifying their holdings.
Granted, your success in digital-asset investing will depend heavily on how well you manage your portfolio. If you are lost in the technical aspects and various concepts of managing your crypto portfolio, here are some basic tips you might want to apply.
Diversify your crypto portfolio
For many beginners, getting started with crypto investing is as easy as buying bitcoin, or any other altcoin. But did you know there are nearly 11,000 cryptocurrencies and tokens available?
Diversifying your cryptocurrency portfolio allows you to reduce risks and maximize potential returns. That way, if a cryptocurrency or another digital asset suffers a downturn, your portfolio won’t be too adversely affected as when the crisis occurs you will always have a safe backup.
The extent to which you should diversify your portfolio is up for debate, as there are several ways to do this depending on your risk tolerance. However, a diversified portfolio consisting of major cryptocurrencies and altcoins (including stablecoins) is the safest choice to make, and it will also protect you during turbulence in the market.
Don’t get caught up in the hype
Cryptocurrency values can be extremely volatile, with wild price swings to both the upside and downside. However, many cryptocurrency traders have a habit of extrapolating recent bull rallies into the future, especially when estimating growth rates to determine the potential return.
Successful crypto investors are always rational about their plans and goals.
Had you got caught up in the 2017/18 bubble, you would have lost significant sums of money. Bitcoin and other altcoins all seemed like can’t miss opportunities at the time, but the truth was far scarier.
If you want to avoid mistakes like that, forget about what is being hyped and stick to what you know. This doesn’t mean you can’t invest in new, promising coins or blockchain startups. In fact, it simply advises that before you consider a particular investment, you must do your due diligence. In other words, don’t just invest in anything because you are starting to hear about it, but only when it’s a smart and well-thought-out decision.
Invest in crypto assets you know
You should be able to estimate the future growth of the digital assets you invest in for the purpose of allocating your capital. Shockingly, a lot of investors ignore this common sense and invest in cryptocurrencies and blockchain projects that operate outside of their knowledge base. Unless you understand the economics of a startup and can reasonably forecast where their business will be within a few years, it’s probably not wise to take part in their IDO or other types of fundraising.
To be a successful investor, you also have to understand some advanced concepts and strategies, such as arbitrage, derivative contracts, options valuation, among many others. This knowledge expands the potential areas of investment available to you as many lucrative opportunities are only found under the “too difficult” pile.
Use a crypto portfolio tracker
As you build your cryptocurrency portfolio, you may have to deal with different exchanges, platforms, and wallets. As a result, it can be complicated to manage your crypto portfolio across these venues while trying to remember which cryptocurrency/token is where.
Crypto exchange aggregators are a way to solve this problem. Their basic edge is that they offer a unified platform that provides crypto investors with consolidated services to tackle user experience issues.
An example of these providers is Atani, which offers a comprehensive investment ecosystem that allows users to manage multiple trading accounts across 22 crypto exchanges into one interface. This makes it easy for crypto investors to perform all trading operations on just one single interface, without switching here and there.
Asset allocation and rebalancing
As your crypto assets move with market fluctuations, the changes in investment values can knock your portfolio off track and impact its ultimate performance.
Balancing your crypto portfolio is also not that different from balancing a traditional portfolio of financial investments like stocks and bonds. That’s why it’s important to periodically rebalance your portfolio, which means moving your invested capital from one part of your portfolio to another (e.g. from Bitcoin to altcoins, stablecoins, or vice versa).
Rebalancing your portfolio aims to keep the original percentage of your money allocated to each category by adjusting their monetary stake. Doing so helps bring crypto investments back to their original mix, so they line up with your strategy and return targets. There are no hard times to rebalance, but most investment experts recommend once or twice per quarter.
In many countries, crypto is taxed in the same way just as capital gains from trading stocks and other investments. In this case, when you sell or trade crypto you may need to report/pay tax on the difference between the selling price and the price you bought it for.
This process, however, is messy and complicated. Even in simple cases, calculating crypto taxes requires meticulous record-keeping, and the difficulty only increases with each type of asset held.
Atani deals with the grey area of crypto tax affairs in a time when the regulators have moved slowly in getting to grips with this new paradigm. The platform automatically generates audited tax reports which is a service that exchanges have been slow to even consider, let alone introduce.
Portfolio management takes time and effort, but by following a few simple tips, you can ensure you have a healthy crypto portfolio that will work for you.
You can achieve good returns by dealing carefully with your asset allocation and balancing your crypto portfolio regularly.
Service aggregators like Atani bundles together many features that crypto investors need to manage their investment portfolio. Portfolio tracking, built-in tax auditing reports, asset discovery, price, and liquidity analysis, even scalping trading were also made easy under a single application.
All these functions should help you navigate the market and avoid falling into common pit traps.