Bitcoiners, Here’s How to Lower Crypto Investment Risks with Balanced Portfolio
A cryptocurrency investment portfolio is something that anyone can put together. Of course, those who do decide to go forward and develop an investment portfolio should understand that it takes some time to understand what one is doing and to identify the right investments.
Right now, the cryptocurrency market seems to be performing solidly and has provided investors with a decent rate of return in the past year convening various projects. According to one source, those who had invested $100 USD in January would have earned $1,000 USD by now. Ideally, it is best to do the math and to determine the validity of that investment mark.
Those who are interested in investing may want to consider a long-term investment approach. Over time, it is expected that the investment will grow and lead to positive returns.
Here are a few benefits that come with a long-term investment strategy:
Low Trading Fees
Crypto investment comes with exchange fees when one trades or buys cryptocurrency from a platform. The trading fees eventually reduce profits, so it is important to be wary of how much one is paying in fees and how often the fees kick in. Due to the fees, it is best to do one or a few investments and to leave it there over the long term.
There are some that also believe that a long-term investment leads to lower risk. Long term investment plans give investors the opportunities to go in and out of the market at the right time, which seems to make it a lot easier.
Another consideration to take into account is the long-term viability of the investment. There are a few indicators to take into account when assessing the long-term viability of an investment:
- Market Share
First, look at the market share capitalization for the particular cryptocurrency that one is interested in. The higher the market share rate, the more it suggests that the cryptocurrency is a dominant one in the market. For example, Bitcoin (BTC) has a high market capitalization in the crypto space. As a result, having bitcoin in one’s portfolio can lead to success.
- Transaction Volume
Second, it may be good to look at the investment volume. The transaction volume can fluctuate on a daily basis, so long as the trend continues, it may be best to keep the cryptocurrency in one’s portfolio.
- Utility Value
Third, the utility value of a cryptocurrency involves determining whether the cryptocurrency will be a part of the market for years to come. It is also important to assess whether the cryptocurrency is important in today’s market. Some cryptocurrencies have a utility value that relies on developers creating a decentralized application on the blockchain and as a result, this will increase utility value.
- Technology Compliant
Fourth, determine whether the cryptocurrency is technology compliant. Technology development is an important factor to look at because it helps show whether the cryptocurrency will survive in the market.
- Portfolio Construction
Fifth, portfolio construction is another factor to assess. Portfolio construction involves determining what percentage of the cryptocurrency has in one’s portfolio and that factors into the risk level or tolerance toward the risk. Keep in mind that when constructing one’s portfolio, it is imperative to do research and to determine which cryptocurrencies should be a part of the portfolio and how much of a place they should hold.
- Neutralizing Volatility
Sixth, it is important to recognize that the cryptocurrency market is speculative and volatile. Thus, it is useful to have a portfolio that can withstand the volatility. For instance, bitcoin is known to withstand volatility well. By neutralizing the volatility with various cryptocurrencies, investors have positive potential of receiving investments form new traders. Some tend to choose 50 percent of bitcoin and 50 percent of altcoins for their portfolio to avoid volatility.
Overall, investing in cryptocurrency is a big decision and one should do so carefully and with adequate research. Further, take note that the article is not meant to provide investment advice. Investors should do their own research by reviewing, analyzing, and determining whether an investment is right for them and whether a strategy identified in any news source is a viable approach. This article is not investment advice or guidance and should not be construed as such.