When investors in crypto win, they win big – sometimes to the tune of millions of dollars. Yet when they lose, the losses can be equally staggering. In the previous year, investors watched the crypto market shed approximately $2 trillion of its global value. Portfolio management is a skill you will have to learn, otherwise, the market will teach it to you the hard way.
Just ask those who have watched their crypto assets tank in the midst of economic turbulence. With drastic shifts to ASIC mining and questions of crypto’s energy consumption on the table, further uncertainty is a given.
In this guide, we will discuss key principles of crypto portfolio management. Soon you will be ready to build a robust, diverse portfolio that gains consistent returns and minimizes your losses.
First, Brush Up on Your Crypto Knowledge
How well do you comprehend the technology behind cryptocurrency? There’s a good chance you still have a lot to learn. Things have come a long way since Nakamoto envisioned a decentralized, stateless currency back in 2008.
Bitcoin is an old hat, as is the proof-of-work standard. Coins like Ethereum have already adopted proof-of-stake and other more efficient means of Blockchain verification.
There are tether coins, which tie their value to a fiat currency. Then there are NFTs, which merely use the Blockchain to establish ownership of a string of data. Further developments include implementing Blockchain games, exclusive clubs, and even virtual worlds.
All of this is to say that this is a rapidly-changing world. You will need to stay vigilant in all the latest developments.
Know Your Investment
A key component of any good investment is an understanding of what you are investing in. Too many people dive into the latest fad. It’s no surprise when they lose everything later on.
Have at least a rudimentary understanding of the coins and Blockchain technologies you invest in. Not just their rising dollar values on Coinbase, but their underlying market potential. Are these revolutionary coins, or are they just the latest pump and dump?
Keep Up With the News
Blockchain technology, like AI and other industries, is rapidly evolving. One can easily lose track of the latest developments. Even disconnecting for just a week can leave you behind on current trends.
Make a concerted effort to keep yourself current. Follow all the biggest crypto influencers and investors on Twitter. Join Discord and participate in group chats and discussions in coin communities.
Investment is as much a social prognosis as a financial calculation. Understanding the current situation will take a lot of effort. But at the end of the day, you will be better equipped with updated knowledge.
Best of all, this keeps you aware of any budding scams. Getting the news from the source can prevent you from being one of the saps who invests in a questionable coin.
Decide on a Passive or Active Approach
Most people fall into one of two camps: passive or active. Active tends to refer to day traders, who are buying and selling coins at a high rate. Passive investors use a buy-and-hold strategy, letting their investments saturate over time.
Generally speaking, an active person focuses on the short term. A passive person lets long-term trends take their toll. They exhibit patience and rein in their FUD.
Consider Keeping a Portion of Investment in Established Coins
While it can be lucrative to take risks with venture capita such as new coins, every investor knows to stick with their guns. In other words, you may benefit from keeping a portion of your portfolio in established coins. That means Bitcoin, Ethereum, and the rest of the old guard.
New coins come and go, but Bitcoin and Ethereum have been around since the beginning. They are established Blockchain technologies with a diverse global network of miners. These are giants that are not going away anytime soon.
It’s important to maintain a stream of passive income. FOMO and FUD get people in a lot of trouble, especially with the fever of new coins. You might consider staying true to a cluster of time-proven investments at the core of your crypto portfolio.
Diversify Portfolio Management With New Coins
Of course, it might not be a good idea to stick to ETH and BTC for all investment principal. A crucial investing strategy is to diversify.
In layman’s terms, this means spreading out your wealth into a wide variety of investment pools. The market will always be in rapid fluctuation, and you will always be losing. With a diverse portfolio, your gains in certain pools will make up for losses in others.
Diverse portfolios are far more versatile and resilient than dumping everything into a single coin. Even if that coin does eventually rebound and provide a return on your investment, it can leave you guessing for a long time. A diverse portfolio gives you assurance and confidence and helps you to resist the urge to pull out unnecessarily.
On a somewhat regular basis, you might divert some of your funds into new coins that show promise. There will be plenty of losses. Eventually, though, one of these coins will make it big, and you might as well.
A static portfolio won’t last long. It has to move in response to some of the changes, although that isn’t to say you give credence to your FUD. Rebalancing is a gentle reallocation of your funds from poorly-performing coins to those seeing an uptick.
For example, suppose your BTC is in the doldrums for an uncomfortably long period of time. A rebalance might mean siphoning a person from your BTC into an alt-coin that’s on the rise.
Take note, we are not suggesting day trading. Gas fees are high, and can quickly zap your investment funds. Rather, we’re talking about a calculated transfer from one coin to another as necessary.
Use a Portfolio Tracker
A portfolio tracker is an essential tool for portfolio management. Think of it as a digital ledger, one that automatically keeps track of your investments. Most importantly, a portfolio tracker provides high-level insight into the following:
- Your gains and losses
- The overall portfolio balance across investments
- Your current holdings
- How each investment tracks with your profit targets and goals
That said, view a portfolio tracker as a tool, not as the one making decisions for you. At the end of the day, make the decisions that best fit your investment strategy and perspective.
Best of all, a portfolio tracker gathers analytics in the long run. You can look back over the course of months or years and begin to identify trends in your behavior and investment performance. Use this to tweak and improve your strategy as time goes on.
Be Conscious of Emotional Manipulation
It’s no secret that there are plenty of grifters and tricksters in the crypto sphere. We aren’t just talking about those who engage in pump-and-dump schemes. We’re also talking about influencers who give questionable, often bogus, investing advice.
Remember, investing is not an emotional game. It is a calculated one. Your goal is to use facts and data to make decisions, not emotional appeals or good feelings.
Tons of people are out there to manipulate you. They try to sway you towards irrational decisions with your cryptocurrency portfolio.
To avoid this, ask yourself a simple question: what is driving me to make the decision at hand? Identify the emotions you feel in regard to a decision.
You may recognize that you are making a decision based on an emotion. It could be that fear, excitement, or something else entirely.
This is the way that many crypto influencers get people to make terrible financial decisions. If you can learn to identify when your emotions are playing into your decisions, you can stop unrealistic emotions from hurting your investments.
Plan Exit Strategies
Unfortunately, all good things must come to an end. Even the strongest coins may eventually meet their demise. The graveyard of history is littered with the bodies of many, many failed coins.
The day may come when your coin reaches a bear market. A run on a coin may occur. Everyone may seem to be taking out their share, tanking the value even faster.
You need to be prepared for when these moments arise. Particularly, what decision you were going to make. Ask yourself questions, such as how long you will hold, and when you will pull out.
Losses are always going to happen, but you have to mitigate them as much as possible. This means determining how much you can afford to lose. That way, you have a clear idea of when to hit the eject button–or if you wait for a rebirth.
Stay Up-To-Date With FDAR
Portfolio management is the most important habit a person can develop to maximize their returns. Cryptocurrency is volatile and will require an entirely different mindset compared to other markets. With the above advice, you have a solid place to start.
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