How to Build a Balanced Crypto Portfolio in Volatile Markets

Crypto markets are highly unpredictable which makes them extremely volatile. Only the ones with a big heart can survive in this market. As the saying goes,”it’s not for the weak hearted”. Now if you are one of those people who wants to take a risk but by being on a safer side, then you’ll need a balanced crypto portfolio that offers both stability and excitement.

Many beginners are always confused about how to actually do this. That’s why we are here to take that worry away. This article will explain everything you need to know to balance your portfolio and manage your risk appropriately.

What Makes Crypto Market So Volatile?

Before we move on and help you create a balanced portfolio, let’s talk about what actually makes this market so volatile and risky. Here are the factors that play a big role in the crypto market:

1. Lack of Regulation

The main problem is that cryptocurrency is a highly unregulated market as compared to the traditional financial systems. Because of this oversight the price movements become rapid and unpredictable as there is no central authority to handle and maintain it. Additionally, other factors which contribute to the dynamics are the newer features like the LTC payment method which allows users to complete transitions using Litecoin lightning quick. These innovations add to the market’s volatility. However at the same time this payment method is highly effective to transfer money in the form of LTC from anywhere in the world.

2. Market Sentiment and Speculation

The crypto market also changes based on the market sentiment and the speculative activity from the investors. Other things like new events and even tweets from influential figures have a strong impact on the market. Even the winning of Trump in the U.S. election created a surge in the price of Bitcoin and is about to touch 100k. It’s a classic example of how news has an impact on the crypto market.

3. FOMO and Panic Selling

Many people become emotional and invest in the crypto market in search of making profit. However, most of these people end up in loss as they don’t know how to manage risk and end up buying or selling at the worst time. FOMO, which stands for Fear Of Missing Out is a huge problem for new investors as well as panic selling. All this creates a domino effect which causes the prices to crash rapidly.

4. 24/7 Trading

Unlike traditional markets the crypto market is open all the time literally. This means that price movements can happen any time even at the darkest of hours. It means that you might invest thinking you’ll make profit in the morning but as soon as you wake up you get surprised by the loss you’re in. In such a case it’s important to understand risk management and tools you can use to minimize loss.

How Can You Diversify Your Portfolio?

The best way you can build a balanced portfolio is by diversifying your investments. What this does is that it spreads investments across different assets which also reduces the impact if the market suddenly goes down. Here are a few strategies that you can use:

1. Spreading Across Asset Classes

Best thing you can do with your investment is spread them appropriately. This reduces exposure to the risks from a single type of cryptocurrency. Instead of just focusing on major players, go for the newer ones too with the potential to make you tons of money. Here’s how you can allocate funds:

• Altcoins: These may look like small tokens, but they have a lot of potential. They carry more risk as well.
• Stablecoins: Now these ones are the most stable coins and they remain at $1 at all times. It includes USDT, USDC and more.
• Utility Tokens: These next ones are the ones that are used for specific services like BNB and LINK.
• NFTs and Metaverse Tokens: Lastly for investors who are more interested in virtual economies and digital world they can also allocate a small portion to growing projects as Metaverse is essentially the future.

2. Choosing Different Blockchain Sectors

If you’re new to crypto, you should know that there are different sectors of this market. Each of them has a unique focus and use cases. The best sectors that you can invest in are:

• DeFi (Decentralized Finance): Projects like Uniswap or Aave focus only on disrupting the traditional banking systems and establish crypto as the main hub for all transactions.
• Gaming and Metaverse: This sector is also booming and includes platforms like Decetraldn and Axie Infinity.
• Infrastructure and Protocols: Tokens like Polkadot and Solana create the foundation on which the blockchain technology works and mostly the long-term investors get attracted to these ones.

Example Breakdown

Now, suppose that you have $1,000 and you want to invest them in a way that’s both risky yet stable. What you’re gonna do now is throw 50% (500$) of your investment in major cryptocurrencies like BTC and ETH and try to be patient with them as these tokens go up and down according to sentiment but they always go back up.

After that allocate 25% (250$) to the Altcoins like ADA, SOL and LINK that are actually solving problems for the blockchain sector or in the real world. These tokens have the most potential due to their use case. Then, throw in 15% ($150) into stable coins so that you can use them to make new purchases whenever an innovative project joins the ranks.

Now with the remaining 10%, invest 7% ($70) in emerging sectors like gaming and Metaverse. For that you’ll have to invest in MANA and other relevant tokens. Send the remaining 3% (30$) into staking or yield farming so that they can make money even while you’re asleep while maintaining or even increasing their value.

Wrap Up

The percentages above are just the starting point. You’ll have to make adjustments according to your risk tolerance throughout the journey to maximize your profit. But according to experts, diversification is the best way to create a balanced portfolio. Remember, never invest more than you can afford to lose and always do thorough research and understand the market and the asset before you throw money in the market.