By asking yourself how much of my portfolio should be in crypto – you are essentially asking yourself a strategic question that seeks to find a sustainable approach to diversify the risks to your assets.
Of course, we would all like to have a simple, unambiguous, and definitive answer regarding the best crypto portfolio allocation strategy, but there is no such thing. Since a strategy must take into account many factors, the best crypto portfolio allocation strategy will be the one that is most adaptable and ready for different scenarios. Also, the development of such a strategy is a constant individual work, as it should reflect your personal priorities.
However, there are a few so-called golden rules that apply to any portfolio, and the crypto portfolio is no exception.
What Is Risk Diversification?
First of all, let’s define risk diversification as an approach that takes as a basis the rule that your assets should not depend on common factors. This doesn’t just apply to crypto or even just finance, but to any asset.
For example, you want to buy a property to rent out, and you have the funds to buy 3 houses. Buying all in the same city, or even in the same country will be relatively risky, because the city may stand near a barrier and in case of its breach all houses will be destroyed, or in case of a military conflict all houses even in different cities will be at risk. Therefore, many people prefer to buy property in different countries or even continents.
With the diversification of cryptocurrencies, as they operate on top of decentralized blockchain networks and in the digital space – the risk factors are different, but also require analysis and classification, as we will discuss later.
Recognize the boundaries
First, you need to be clear about what you can and cannot know. No one knows for sure how the world economy will develop and what events will contribute to it, but it is possible to estimate probabilities with a certain degree of accuracy given the right level of knowledge and experience. It is the accumulation of knowledge and experience about how the market works and what factors affect it – that will be the most direct reflection of how sustainable and profitable your portfolio will be.
Take a Long-Term Perspective
When apprenticing the volatility of your crypto assets, always consider them in the largest timeframe available. Many events and their effect on crypto assets have already happened several times, and you can learn a lot from this.
Look at the ups and downs of the asset throughout its history, determine what factors have changed those dynamics, and identify assets that react to similar events similarly. From this, you will be able to determine if an entire sector of your portfolio is at risk.
Consider the Political Situation
To understand the risks to your crypto assets, you need to look beyond the economy and assess domestic and global politics. The political climate in a country can be unfavorable and ban the use of crypto in one day, while crypto companies in that jurisdiction and their tokens will decrease in value.
Note that this is not an economic factor, but a purely political one that affects the crypto economy in the most key way. Or if we take a more global politics, the situation between individual states can get very heated and escalate into a military conflict. Depending on the countries involved and the details of the political sides – it can increase or decrease the value of crypto assets.
For example, the adaptation of crypto to escape sanctions and use in international trade by Russia could significantly support the value of cryptocurrencies used for this purpose, in particular, Bitcoin.
But if there is a conflict between China and Taiwan, we could see the entire crypto market and many other technology sectors plummet as computing power becomes scarce, and this could spook many investors.
Technology and Resources
Without going too far, it is always worth evaluating your portfolio and all the assets in it in terms of the tools that have a purpose and do the job.
These instruments should be the most indispensable and special for finance, which should not be based on buzzwords, but on the technology behind them and the function they perform. Also, always consider the resources they need to perform that function, such as energy, infrastructure, etc., which are also very dependent on the political climate and other technologies like AI.
For example, you have in your portfolio:
- Bitcoin is one of the few limited-issue crypto assets that performs the function of digital gold and helps to avoid inflation. It is independent of other assets and runs on its network, except that it is not the most energy-efficient.
- Ethereum is a key player for the crypto industry, possibly replaceable in its function, but not position thanks to the richest ecosystem of solutions based on it. Thanks to it we can not only sell and buy crypto assets like Bitcoin but also have more complex solutions like NFT, DApps, DAO, and others. However, in case of an energy crisis, it could be heavily overshadowed by alternatives with similar functionality and better energy efficiency.
- Solana is the first contender to replace Ethereum due to its similar functionality for NFTs, DApps, DAOs, and so on, but it is much more energy efficient, with much cheaper transactions. It also has its own network, which makes it independent, but also not natively integrated into the largest DeFi ecosystem.
- Cardano, however, some solutions make Ethereum more efficient and maintain native integration with its entire ecosystem, also being supported by very large players because of the good technological solutions behind it. However, this has a dependency on the Ethereum network in case of problems it will affect Cardano as well.
- Constellation is based on a different technology altogether and is not essentially a blockchain, which is why it deserves attention. Let’s say there is a scenario where blockchain technology has exhausted itself, and the math behind it does not allow making solutions based on it more functional or efficient. Then it is possible to switch to a completely different technology that can perform the same functions, but without the limitations and with greater efficiency.
The list goes on, but the main approach here is that any crypto asset, and all your crypto coin portfolio, should be considered not only short-term ups and downs in the market but political, economic, and technological factors together.
Consider Different Financial Instruments
The crypto industry is actively developing, providing an ever wider range of financial instruments that allow you to profit in different market scenarios if you combine them properly.
One such instrument is fixed-income funds, which allow you to significantly allocate risks with volatile crypto assets. In particular, the launch of Bitcoin ETFs and then Ethereum ETFs have greatly opened up opportunities for crypto investors, attracting huge investments, and definitely deserve attention.
Know When to Get Out
Don’t get attached to the assets you have invested in and learn to say goodbye to them when your analysis requires you to do so. This can often be difficult emotionally, but emotion is the biggest enemy of investing.
It requires knowledge, experience, and a cold calculation to make fewer and fewer mistakes over time and eventually reach a level of investment return that satisfies you without leaving any sentiment behind.
Optimize Your Investment Set-Up
You need quality resources and tools to know what’s going on in the market at all times and to make informed decisions.
For example, reading a news feed can be time-consuming and you can miss out on a lot of things that are happening right this very minute. Therefore, it is much better to use RSS feeds, where you will briefly receive the most up-to-date information in real-time and your chosen trusted resources.
The same goes for the price of your assets in your crypto portfolio. It may be distributed between different wallets within the same application or even between different applications for security reasons, which makes it inconvenient to monitor their price and dynamics.
For this purpose, use a crypto portfolio tracker, where you can add your accounts on crypto exchanges, crypto wallets and see up-to-date data in one place.
What is the Best Crypto Portfolio Tracker?
This largely depends on how your crypto portfolio is organized and which of the crypto platforms and wallets a particular crypto portfolio tracker is integrated with.
However, there are a few market-leading solutions that you should look into.
CoinMarketCap
One of the most popular platforms can be a great free solution that collects up-to-date information on a multitude of crypto assets from various crypto exchanges. Specifically, it provides access to data on 1,000 cryptocurrencies from over 400 exchanges. You can connect your wallets and Binance account and get real-time market data including market cap, trading volumes, and overall asset performance over the trading period.
CoinGecko and Koinly
A similar solution from another leading cryptocurrency platform CoinGecko. There you have access to 20,000+ cryptocurrencies and over 800 crypto exchanges and wallets integrated. In addition to information and analytics, you can calculate taxes for transactions, get automated tax reporting, and collect tax losses.
CoinStats
One of the most popular and respected crypto portfolio tracker, it supports 20,000 crypto assets including NFTs, 1,000 DeFi protocols, 300 crypto exchanges, and wallets via API keys. It allows you to keep information about all assets in one place, with a high level of security for which they introduce many measures like industry-grade encryption standards and access control mechanisms.
However, it is a paid solution:
- The Basic free plan – has 10 portfolios and contains a few of the platform’s features.
- The Premium plan costs $13.99/mo. Track 100 portfolios, conduct 100,000 transactions, receive custom alerts, view portfolio heatmaps, and other features not available on the Basic plan.
- The Degen plan costs $62.91/mo. 500 portfolios, 1 million transactions, VIP support, an unlimited daily sync count per portfolio, an AI bull market price, and more.
CoinTracker
Another paid but advanced solution that provides access to 10,000+ cryptocurrencies through more than 500+ wallets and exchanges, and is also very focused on security, implementing end-to-end encryption and token-based two-factor authentication to protect user accounts.
There are several plans with different features here too:
- The basic plan costs $59 per year. It offers portfolio tracking, tax reports for all years, and up to 100 transactions.
- The Prime plan costs $199 per year. Up to 1,000 transactions, plus portfolio tracking, performance tracking, tax loss cleanup and more.
- The Ultra plan costs $599 per year. Up to 10,000 transactions, additional powerful tools for tax optimization and portfolio efficiency, tax batch breakdown, portfolio and efficiency tracking, priority customer support, and more.
Conclusion
Their price is a complex of political, economic, and technological factors, and the many interrelationships between them.
Therefore, learn the basics of what influences price and constantly monitor these dynamics over the long term, discovering patterns in asset behavior and constantly optimizing your risk diversification strategy.
Also, since we live in an age of information overabundance and misinformation, use only trusted authoritative sources, and do not take anyone’s advice as guarantees or recommendations, or tools that allow you to simplify your work with it.
And remember, your investments should be based on your assessment of the situation and making your own decisions, and perfecting this assessment is labor, not luck.
