However, it can still be a challenge to survive the extreme price fluctuations in the cryptocurrency market. This is exactly why you should learn how to diversify your cryptocurrency portfolio. Through diversification, you can spread out your money across different coins, which means spreading out your losses as well.
The Benefits of Diversification
As the adage goes, never put all your eggs in one basket. This is something you should always keep in mind when trading cryptocurrencies. After hitting $19,000 toward the end of 2017, many people were positive that the price would go up even further in the first-half of 2018. Evidently, this prediction didn’t come true. As of July 2018, the price of Bitcoin sits at around $6000.
If you invested all your money on Bitcoin, then you have felt the steep decline in price. But what if you also invested on other digital coins? Most coins have also seen their prices go down immensely, but some of them faring better than.
Investing in other cryptocurrencies allows you to balance things out. If the price of one coin goes down but another goes up, you may end up breaking even.
Deciding What Coins to Invest In
You don’t have to be an expert investor to understand the importance of diversification. The difficult part is deciding where you should invest your money. Using a crypto trading software like Bitcoin Code is an easy way to buy different coins, but you should first figure out how exactly to diversify. To serve as your starting point, you should categorize the coins you’re interested in into 3 groups: safe, somewhat risky, and high-risk.
It’s always a good idea to put most of your money in cryptocurrencies that are considered the safest investments. Usually, these coins have been around for a few years. The list includes Bitcoin, Ethereum, and Litecoin. Safe coins are trusted by investors because of their reputable development team and real-world applications. These are also the top candidates for the holding strategy.
The somewhat risky category mostly includes altcoins that show potential for growth. You need to invest time in learning as much as you can about these coins to know the team behind them and whether they have realistic use cases.
If you are more of a risk taker, then you may want to consider looking at risky cryptocurrency investments. ICOs are a perfect example. By investing in ICOs, you get the opportunity of buying coins at a low price and hope that it goes up significantly in the future. Many investors have made serious money through this strategy, but it also comes with a lot of risks. Not all cryptocurrency projects become successful, so you might end up investing your money and getting nothing in return.
