"Don't put all your eggs in one basket" - An old proverb that gains double importance in the volatile crypto world. Did you know that 60% of the cryptocurrencies that were in the top 10 list in 2017 are no longer in that list today?
Sami, a successful engineer, invested all his savings in a coin that was considered the "Bitcoin killer" in 2018. "I was convinced it would dominate the market. Today, its value has dropped by 95% from its peak, while other coins I ignored have risen." Sami's story reminds us that predicting the sole winner in the tech race is nearly impossible.
Diversification in your crypto portfolio is not just about spreading risk, but a smart strategy to increase your chances of benefiting from the overall growth of the sector. Here's how to diversify your portfolio wisely ..
Diversification by coin class, diversification based on project status, geographical diversification, and temporal diversification.
Diversification by asset class: Split your portfolio between different classes of crypto assets:
- Major coins (Bitcoin, Ethereum): Represent the relatively safe foundation of your portfolio.
- Layer 1 coins: Independent blockchains like Solana, Cardano, Polkadot.
- Layer 2 coins: Scaling solutions like Polygon, Optimism.
- Stablecoins: To hedge against volatility and wait for buying opportunities.
- DeFi tokens: To benefit from the growth of decentralized finance.
- NFT coins: To gain exposure to the art and digital ownership market.
Crypto experts say: "The best diversification plan is to allocate 40% of your portfolio to major coins Bitcoin and Ethereum, 30% to promising Layer 1 coins, 20% to established DeFi projects, and 10% to small high-risk/high-return projects."
Diversification by project status: You should balance between mature projects and emerging projects:
- Established projects: Safer, but slower growth .. lower returns and also lower risks.
- Mid-sized projects: Have a working product and a strong team, but are still in the growth stage ..
- Emerging projects: High risk, but the potential for huge returns if successful.
Geographical diversification: Projects from different regions are affected differently by regulatory and economic changes in each area.
Karim, an investment analyst, says: "I follow regulatory developments in Asia, Europe, and America, and I distribute my investments so that my portfolio is not significantly affected by decisions from one region."
Temporal diversification: Don't invest all your money at once. Spread your purchases over time periods to reduce the impact of market timing.
Ray Dalio, founder of the world's largest hedge fund, says: "Diversification is the only free lunch in investing." In crypto, keep this wisdom always in mind.
But beware of over-diversification. Holding dozens of coins in small amounts makes tracking them difficult and reduces the impact of successful investments on your overall portfolio.
Samir, a professional investor, shares his advice: "I prefer to own 10-15 coins that I understand well and follow continuously, rather than owning 50 coins whose names I only know."
Review and rebalance your portfolio regularly. As some investments grow and others decline, your portfolio may become less diversified than you planned. Review the distribution every 3-6 months and readjust if necessary; smart diversification is not an option but your shield against this unknown world.
In the next post, we will discuss how to track the performance of your investments - the crucial step to improving your future decisions. Are you ready to turn your data into gold?