Summary

Balancing a cryptocurrency portfolio is essentially the same as balancing a traditional portfolio. You can easily reduce your overall risk based on your situation and investment strategy. To take the first step, simply diversify your investments between different cryptocurrencies.

The degree of diversification is up for debate, and the pros and cons must be fully considered. However, there is general agreement that a certain degree of diversification is good for investors. You can reduce investment risk by holding different crypto assets, including stablecoins, and making sure to rebalance your asset allocation regularly.

To make portfolio management easier, you can use a third-party portfolio tracker or record transactions manually in a spreadsheet. Some trackers can be linked to personal wallets and cryptocurrency exchanges, further simplifying the process.

Introduction

Investing in cryptocurrency is just like buying Bitcoin, Ethereum or other cryptocurrencies for the first time Simple. Some investors prefer to buy and hold the largest cryptocurrencies, while others try investing in altcoins. However, what is the best approach? If you carefully analyze your asset allocation and regularly balance your cryptocurrency portfolio, your chances of success will be much greater. There are many ways to achieve this, depending on your personal risk tolerance. Balancing your investment portfolio is easy, but it can be very effective.

What is a cryptocurrency portfolio?

A cryptocurrency portfolio is a collection of cryptocurrencies held by an investor or trader. Portfolios are typically made up of a variety of assets, including altcoins and cryptocurrency financial products. It's very similar to a traditional portfolio, except you invest in the same type of assets. You can manually track your cryptocurrency portfolio using spreadsheets, or use professional tools and software to calculate holdings and returns. A good portfolio tracker can make a huge difference. Trackers are great for day traders and other short-term traders, but they can also create value for long-term investors and long-term holders.

What is asset allocation and diversification?

When creating a portfolio, you should master the concepts of asset allocation and diversification. Asset allocation means investing in different asset classes (e.g. cryptocurrencies, stocks, bonds, precious metals, cash, etc.). Diversification involves allocating investment funds among different assets or sectors. For example, invest in different industries such as agriculture, technology, energy, and medical care to achieve diversified holdings. Both strategies reduce overall risk.

Technically, cryptocurrencies are a single asset class. However, in a cryptocurrency portfolio, you can diversify across products, currencies, and tokens that represent different goals and use cases. For example, a portfolio could be allocated to 40% Bitcoin, 30% stablecoins, 15% NFTs, and 15% altcoins. For an in-depth understanding of this topic, read Asset Allocation and Diversification Explained.

Concentrated vs. Diversified Cryptocurrency Portfolios 

Most recommendations agree that diversification is a must ize your cryptocurrency portfolio. Although this is a common practice for investors, there are pros and cons to diversifying your funds into different assets. As mentioned earlier, a diversified portfolio reduces overall risk and volatility. Losses can be offset by gains, leaving positions stable and giving individual portfolios more opportunities to profit from the currencies they hold. Although some investments may not be profitable, with proper asset allocation and diversification, you are likely to be the beneficiary of your long-term investments.

However, the more diversified a portfolio is, the closer it is to the overall market. Most traders and investors hope to achieve returns that far exceed the market average. Highly diversified portfolios deliver mediocre returns compared to successful concentrated portfolios, with underperforming assets offsetting gains from highly profitable assets.

Managing a diversified portfolio also involves more time and research. In order to invest reasonably and soundly, you should understand the assets you are purchasing. If the portfolio size is large, the possibility of gaining in-depth knowledge of each asset is reduced. If the portfolio spans different blockchains, you may also need to use multiple wallets and trading platforms to deposit and withdraw assets. The decision whether to adopt a diversification strategy rests with the investor, but we always recommend implementing a certain level of diversification.

Different types of cryptocurrencies

Bitcoin is the most famous cryptocurrency and has the largest market capitalization. However, a balanced portfolio will absorb a range of different currencies, reducing overall risk. Let’s take a look at some of these types.

Payment coins

Today, there are very few emerging tokens whose main purpose is payment. If you go back to the beginning of cryptocurrency, most projects were value transfer systems. Bitcoin is undoubtedly the most famous example, but Ripple (XRP), Bitcoin Cash (BCH) and Litecoin (LTC) are also typical representatives. They were the first generation of cryptocurrencies, long before the advent of Ethereum and the introduction of smart contracts.

Stablecoins

Stablecoins attempt to anchor an underlying asset (such as fiat currency or precious metals). For example, BUSD is pegged to U.S. dollar reserves at a 1:1 ratio. PAX Gold (PAXG) uses the same system, but is tied to the price of an ounce of gold held in gold reserves. Although stablecoins may not necessarily bring huge returns, their prices are strong and they can be called a true "stable" currency.

The cryptocurrency market is volatile, and including hedging assets in your investment portfolio can reduce risk. If a stablecoin is pegged to something outside the cryptocurrency ecosystem, it will not be affected by cryptocurrency market declines. If you need to withdraw funds from a certain currency or project, you can quickly convert the tokens into USD-backed stablecoins (such as BUSD) to protect your profits. The process of exchanging fiat currency is much more complicated than stablecoin trading.

Security Tokens

Like traditional securities, security tokens can represent many things. It can represent company equity, bonds issued by the project, or even voting rights. Securities are effectively digitized and placed on the blockchain, meaning they are essentially subject to the same regulations. Security tokens are therefore subject to the jurisdiction of local regulators and must undergo legal review before issuance.

Utility Tokens

Utility tokens are the key to a service or product. Binance Coin and Ethereum are both utility tokens. Additionally, you can use utility tokens to pay transaction fees when interacting with decentralized applications (DApps). Many projects issue proprietary utility tokens and raise funds through token issuance. In theory, the value of a token should be directly linked to its utility value.

Governance Token

Holders of governance tokens can obtain project voting rights and even revenue sharing. You will most likely find these tokens in decentralized finance (DeFi) platforms such as PancakeSwap, Uniswap or SushiSwap. Like utility tokens, the value of governance tokens is closely tied to the success or failure of the underlying project.

Cryptocurrency Financial Products

A portfolio does not necessarily mean holding different tokens. Cryptocurrency financial products can also deepen portfolio diversification. Think of it as investing in government bonds, exchange-traded funds (ETFs) or mutual funds as well, rather than simply holding stocks. You can invest in numerous products across different blockchains and DApps.

Binance offers a variety of financial products for beginners in this asset class. Please log in to your personal Binance account and go to the [Financial Business] section for details. All products have different levels of risk and it is important to understand how they work before taking the plunge.

How to build a balanced cryptocurrency portfolio

This topic differs from person to person. , A wise man has his own opinion, every investor or trader has his own point of view. However, the following basic rules are worth thinking about:

1. Divide the portfolio into high, medium, and low-risk investments and give them appropriate weights. A portfolio with a large proportion of high-risk investments is certainly unbalanced. It can create big gains, or it can cause big losses. Your personal risk tolerance will determine which one is more appropriate, but regardless, holdings must be mixed.

2. Consider holding some stablecoins to bring liquidity to the investment portfolio. Stablecoins are key to many decentralized finance platforms, helping to lock in profits or close positions easily and quickly.

3. Rebalance the portfolio as needed. The cryptocurrency market is extremely volatile and you should adjust your decisions based on current conditions.

4. Allocate new funds strategically to avoid overlying one area of your investment portfolio. If you've recently made a lot of money on a certain currency, you may be tempted to invest more. Don't be distracted by greed and find a more ideal place for your funds.

5. Personal research. This classic advice is indeed an irrefutable truth. You are investing your own money and cannot rely entirely on other people's advice. For tips on identifying potential scams, read Five Common Cryptocurrency Scams and Strategies to Prevent them.

6. Invest rationally and within your capabilities. If you're feeling stressed, your portfolio is definitely not properly balanced. Your position should not lead to serious consequences even if it encounters extreme circumstances.

Cryptocurrency Portfolio Tracker

Portfolio Tracker is A program or service that allows users to track changes in the assets they hold. You can see how your current configuration aligns with your long-term goals and track progress over time. Here are some trackers worth trying:

CoinMarketCap

CoinMarketCap is a popular price tracker that has developed its own portfolio functionality and can run on both desktop and mobile devices. Free to use. The portfolio tracker cannot be linked to a personal wallet or trading platform, and users need to manually add assets before use. In addition, you can add purchase prices to accurately track personal gains.

CoinGecko

CoinGecko is primarily known for its cryptocurrency price tracking capabilities, but it also has portfolio options. You can use this tracker for free through your browser or on your mobile device. Even if you are already a long-time CoinGecko user, this tracker is still worth a try.

Blockfolio

Blockfolio is ideal if you want to be able to trade while managing your portfolio. This company was founded in 2014 and has a strong reputation in the cryptocurrency space. However, it is only available on mobile and does not offer the same cryptocurrency trading experience as on a computer.

Delta

Delta is a mobile app that supports viewing cryptocurrency portfolios and traditional investments simultaneously. It connects to 20 trading platforms and various wallets including Binance. The app offers free and paid versions, but users cannot make transactions within the app.

Summary

Many cryptocurrency markets are closely related to the development status of Bitcoin, but this is not a rejection of balanced investment Reasons for the combination. Diversifying your cryptocurrency investments can offset some of the losses from the Bitcoin crash, and some degree of diversification is always a wise move. Don’t forget, there’s more to a balanced portfolio than just holding multiple currencies. When it comes to building the right portfolio based on your risk tolerance, a little strategy can go a long way.