How to Diversify Your Crypto Portfolio: Best Strategies
In the world of investing, diversification is critical. That advice is true for portfolios with traditional investments, cryptocurrency, or both. When you spread your wealth, you are less likely to suffer a significant financial blow if the assets tank, especially with cryptocurrencies. If you are looking to diversify your crypto portfolio, here are a few of the best strategies.
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How to Diversify Your Crypto Portfolio
Learn from Professional Investors
Today, angel investors are prevalent in the investment world. They often fund early-stage startups with various levels of success. If you want to diversify your portfolio, use a few tips from them. These investors make many different investments to diversify their portfolios. With that, you can have a more compelling portfolio than relying on one type of investment.
However, crypto does make diversification more complicated than those traditional investments. For example, no available mutual funds offer broad exposure to these digital assets. While that might sound like bad news for the crypto investor, some savvy strategies can help you mitigate risks.
If you are looking for a professionally managed fund with cryptocurrencies, there are slim pickings for your portfolio. Fortunately, a handful of products can make these currencies more accessible to people who prefer to work with traditional investing methods. For instance, an exchange-traded fund can be held in a brokerage account. In some cases, these funds are used as a part of a retirement fund, unlike crypto. Remember that these funds will carry fees and offer less control over assets.
Consider ETFs for investors who want an easy way to diversify their portfolios. These funds are a great way to add stocks or other assets to the portfolio. Unfortunately, the Securities and Exchange Commission has not approved any ETFs that can hold Bitcoin.
That might seem like bad news, but crypto investors can opt for a fund focusing on blockchain technology. These funds buy stocks in companies that work in that sector, but they are not direct cryptocurrency investments. The lack of investments is tied to the skepticism of the SEC to approve these funds. It looks unlikely that a broader-based fund will debut until regulators in the United States become comfortable with cryptocurrency.
Good news is ahead. The first ETF associated with Bitcoin debuted on the New York Stock Exchange, but the fund doesn’t buy the digital currency. Instead, it is a fund that invests in the future contracts of the digital coin. Hopefully, you will have more ETF options for cryptocurrency in the future.
There are other types of funds that provide more direct exposure to cryptocurrencies. Some of these funds have been restricted to only accredited investors. But there have been other ways for investors to access these products. Shareholders can sell directly to one another, but they have fewer consumer protections than buying on centralized exchanges like Nasdaq or the NYSE.
Building Your Portfolio
You don’t have direct ownership of the portfolio when you have a fund. Building a portfolio by yourself can be appealing to many people, and it comes with plenty of advantages. Some crypto holders will want to participate in staking, which rewards participants for helping maintain the networks that support these tokens. Most investors want more control over their investment strategies.
Before you invest, always consult with an advisor. Cryptocurrency is considered high-risk. You should only have a small portion of your portfolio consisting of these digital currencies. One rule is to keep your crypto investment at 10%. A few financial advisors advise caution on crypto investments, often not providing the best advice for those who want to diversify their portfolios.
Most advisors don’t have experience with cryptocurrency. As the industry grows, some advisors are starting to offer better recommendations. Working with a professional helps potential investors feel confident in their decision. If you have a relationship with a financial planner, ask them how they handle crypto, or you can find someone who specializes in these digital assets. There are some online platforms to help individuals compose their cryptocurrency portfolios for those who don’t have an advisor. A few online crypto exchanges allow clients to choose between different types of cryptos assets.
If you are not happy with the above solutions, consider diversifying your portfolio yourself. Many independent investors are more confident to make these investment decisions. Some digital brokerage firms have been jumping on the crypto craze, allowing everyone accesses to these investments. Those online tools make it easy to assemble a portfolio, but you still need to be digital savvy to find the ideal options. Since cryptocurrency is a new asset, it does not have the same analytical tools as those traditional investments.
Investors can follow some basic principles to begin constructing their portfolios. Some analytical websites provide basic market data, while others can help individuals understand how specific technologies support cryptocurrency. The crypto market is steadily growing, and it can be challenging to predict without conducting research. You have to dig into those different projects to get the most for your investments. If you don’t want to do that, you need a broader range of investments that can expose you to the entire cryptocurrency space.
With any portfolio, you need to invest in more than one type of investment. If your portfolio is filled with one type of cryptocurrency, you could be in financial trouble when the market crashes. A diversified portfolio helps keep you on solid ground with your investments. As a crypto investor, you will have to think outside the box and find those crypto-based investments for your portfolio.
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