How to effectively diversify your cryptocurrency portfolio

The key to successful cryptocurrency investing or any kind of investment for that matter is having a rich and diversified portfolio.

In this article, I will be sharing with you my crypto portfolio diversification strategies.

And how I think you can make as much money as possible with your crypto investment while protecting your capital, and remaining flexible to the constantly changing market conditions.

Here’s what we will cover in this post:

Why diversify?
The Best Way to Diversify Your Cryptocurrency Portfolio
- Selecting the Cryptocurrencies to Invest in
- My Personal Cryptocurrency Diversification Strategy
Final Thought on How to Effectively Diversify Your Cryptocurrency Portfolio

Table of Contents

Why Diversify?

Another closely related quote is “put all your eggs in one basket and watch that basket” like a professional watchman.

But is that what the best and most successful investors have done? Certainly not!

So then, you’re always advised to diversify because …

Investing is gambling! And in most cases, you certainly don’t know what you’re doing.

And …

Even if you know exactly what you’re doing (as some will claim), you will be wrong in many cases and you wouldn’t want to lose everything due to a single or few wrong decisions. Would you?

More so, because cryptocurrency (though we have come a long way) is still a “wild wild west”.

Yes, the technology is solid and so much is being built as we speak, but it’s still highly unregulated, extremely volatile; with hundreds of new projects being launched almost every other month who don’t have even a single sustainable business reason to exist.

As such cryptocurrency is not a market that you will want to go all-in on, except you are prepared to become homeless, and hungry.

The Best Way to Diversify Your Cryptocurrency Portfolio

There are two keys to a successful cryptocurrency portfolio diversification strategy:

Selecting the best crypto projects (cryptocurrencies) to invest in.
Efficient Capital Allocation.

To maximize your cryptocurrency investment returns, you will want to be more right than wrong in selecting the coins and tokens that you buy, and what percentage of your capital you allocate to each of them.

Selecting the Cryptocurrencies to Invest In

Picking cryptocurrencies to invest in is similar to picking traditional stocks to buy.

You will want to allocate your capital into different industries and sectors of the economy — Energy, Healthcare, Finance, Technology, etc.

You may even choose to invest in two companies within the same industry.

So that in the event a particular sector or Company is down for any reason, your investment in other sectors can keep you above the waters while you work on a portfolio rebalancing strategy.

Heck, you can diversify into different countries — invest in US stocks, China, Japan, Africa, etc. You get what I mean.

You can do the same thing with your cryptocurrency investment.

There are different types of cryptocurrency markets, all of which have some solid projects —with excellent fundamental analysis— building in them, such as:

Gaming ($ENJ, $MANA, $WAX, $HXRO, $WINK, etc.)
Smart Contracts ($ETH,
DeFi ($MKR, $UNI, $UMA, $COMP, $AAVE, $SNX, $YFI, $ZRX, etc.)
Exchanges ($bnb, $LEO, $HT, $UNI, $FTT, $OKB, $KCS, etc.)
Storage ($FIL, $BTT, $OCEAN, $SC, $HOT, $AR, etc.)
Currencies/Payments ($BTC, $ETH, $DASH, $XRP, $BCH, LTC, XLM, DGB, NANO, etc.)
Privacy ($XMR, $ZEC, $DCR, $ZEN, $XZC, $KEEP, $ONE, $BCN, $LOKI, etc.)

Just to name a few.

Now, haven seen how the cryptocurrency market is divided into different market segments, just like the traditional economy, let’s take a practical look at what a diversified portfolio will look like.

My Personal Cryptocurrency Diversification Strategy

First I will categorize my investment into two and allocated my capital based on the following percentage:

Bitcoin: 25%
Altcoins: 75%

Bitcoin is the first, most popular, most valuable, and most secure cryptocurrency in the market.

And almost all other cryptocurrencies are directly correlated to Bitcoin.

As such I will want to have a reasonable size of my portfolio in the leading cryptocurrency.

And have the rest of my capital spread among 3 to 21 (depending on how large my capital is) solid altcoins hand-picked from the different cryptocurrency market segments.

Personally, the altcoins I will be looking at are ETH, BNB, BAT, PRE, LINK, SWAP, KCS, DIA, COTI, BAND, OCEAN, and other solid projects in the space.

Furthermore, I will categorize my altcoins into two and allocate my altcoin investment fund (75% of my total capital) accordingly as below:

Long term: 70%
Short term trading: 30%

My Bitcoin and long-term altcoin investments will be locked up, never to be touched for the next 1 to 5 years or as long as you may personally determine for yourself.

Finally, I will “trade” my short-term altcoin allocation fund using my tested, trusted, and proven to be effective personal crypto trading strategies:

Your percentage allocation may be slightly or even radically different from mine.

Some people may not want to do any form of trading at all.

While others will want to try and grow their money quickly by actively trading more.

The choice is yours and there’s no just one route to success. Stick to what works for you and know what you’re doing.

My strategy is informed by the need to make as much money as possible but without wrecking myself if I was ever wrong in picking one or more of my investment vehicles.

Also if you’re investing a small amount of capital ($100 to $1000) excessive diversification will hurt you.

Better to buy Bitcoin and 2 to 3 other very solid altcoins and monitor their performance.

Final Thought on How to Effectively Diversify Your Cryptocurrency Portfolio

Any strategy —no matter how informed and effective— is useless if you’re not disciplined enough to implement it accordingly, and flexible enough to adjust —rebalance— your portfolio in the face of changing market conditions.

Sometimes in 2017, I was so confident of my investment in Storiqa ($STQ), MoneyToken ($IMT), and Electroneum ($ETN).

If I hadn’t been proactive, vigilant, and flexible with my investment in these and many other coins we purchased then, I would be homeless today.

Therefore, picking the right altcoins, monitoring your investment, and remaining flexible are key to a successful cryptocurrency portfolio diversification strategy.

Read my previous article on how to perform a cryptocurrency fundamental analysis all by yourself and use it as a basis for DYOR (doing your own research).

And if you want a daily one-on-one chat about crypto and investing strategies, I invite you to join me and other knowledgeable and passionate crypto investors in our Telegram Community.

What is your own cryptocurrency portfolio diversification strategy? Share with us in the comments section below.