How to Build the Best Crypto Portfolio

A fantastic crypto portfolio tracker like CoinStats is one of the most helpful tools you need to build the best crypto portfolio.

Cryptocurrencies have become one of the most potentially lucrative asset classes in the world – soaring in popularity and value over recent years. As an inherently volatile asset class, cryptocurrencies can provide the unique opportunity to generate life-changing wealth over a short period of time, albeit not without risk.

One of the best ways to capitalize on the lucrative nature of cryptocurrencies while minimizing risk is through the construction of a robust cryptocurrency portfolio. In the world of cryptocurrency, building a stellar portfolio is an important job – and an art. A crypto portfolio refers to all the crypto investments owned by an investor or a trader. 

Building the best crypto portfolio requires diligent research, disciplined risk management, strategic diversification, a sound strategy, regular rebalancing, and most importantly, a clear vision. It by no means is easy nor is there a perfect approach. However, specific steps can be taken to increase your chance of success.

The following article will discuss how all types of investors can create their dream crypto portfolio and position themselves for success.

Do Your Own Research (DYOR) 

The first cornerstone principle for creating a fantastic cryptocurrency portfolio is diligent market research. As an investor, you must examine cryptocurrency projects inside and out and be able to precisely answer why you are buying that crypto and supporting that project. 

Doing your own research also minimizes risk. It reduces the spread of misinformation and limits assumption-making. It also keeps your emotions in check and prevents impulsive decision-making driven due to factors such as the fear of missing out (FOMO). 

Diligent research helps shield your portfolio from market manipulation and shilling. Shilling refers to a widespread practice in the cryptocurrency space where users promote their cryptocurrency holdings in an effort to drive up the price. As a result, it is important to make a decision based on your investing thesis and not just because someone told you to. 

There are plenty of ways to conduct your own research. Some methods include reading whitepapers, leveraging crypto tools, analyzing tokenomics and analyzing the team and community behind the project.

Consider Your Risk Tolerance

Cryptocurrency is considered a high-risk investment because it’s inherently volatile, often fluctuating by large amounts within a short period of time. However, risk isn’t necessarily good or bad for an investor. Risk is a two-way street, meaning that each investment into crypto carries the risk of significant failure and the chance of significant success.

Before creating a crypto portfolio, it is essential to evaluate your own risk tolerance. Are you risk averse, an aggressive investor or somewhere in between? Deciding how much risk you are comfortable with is the first step in determining which cryptocurrencies you will buy and how those cryptocurrencies are allocated across your portfolio. 

Before diving into specifics, it is important to distinguish between the two types of cryptocurrencies — stablecoins and traditional cryptocurrencies. Stablecoins are digital currencies whose value is tied to that of another asset — most often the U.S. dollar — that are designed to reduce the inherent volatility of cryptocurrencies. Some are fiat-collateralized, others are crypto-collateralized and others maintain their peg through advanced algorithms. Alternatively, traditional cryptocurrencies refer to all cryptocurrencies that are not stablecoins, such as Bitcoin and Ethereum.

Generally speaking, more risk-averse investors will have a greater proportion of their portfolio in stablecoins as opposed to more aggressive investors. Stablecoins dampen the effects of market volatility.

Diversifying Your Portfolio

Portfolio diversification is a universal investment principle and may be one of the keys to success within the cryptocurrency sector. Diversification refers to the practice of spreading your investments around so that your exposure to any one type of cryptocurrency is limited. In other words, as opposed to keeping all your eggs in one basket, diversification spreads out your eggs across multiple baskets to reduce risk.

Diversification is designed to reduce the volatility of your portfolio over time and help balance risk and reward. It is recommended that all investors diversify their crypto investments to a certain extent; however, more experienced investors with stronger investment convictions may opt for a more concentrated portfolio.

Focus on the Market Leaders

All diversified crypto portfolios tend to include Bitcoin and/or Ethereum. Bitcoin and Ethereum are — by a long shot — the two largest cryptocurrencies in the world by market capitalization, and more or less guide the rest of the aggregate cryptocurrency market. As opposed to other cryptocurrencies that come and go over the course of months or years, Bitcoin and Ethereum have solidified their position in the crypto space for a long period of time. 

Bitcoin is the first cryptocurrency of its kind and is widely referred to as the flagship coin of cryptocurrency. For this reason, all other cryptocurrencies are collectively referred to as altcoins. It is the most decentralized cryptocurrency in the world, and the largest cryptocurrency by market capitalization. Bitcoin is the only leading cryptocurrency that has an anonymous creator, pure organic growth and multiple tests, which has resulted in it being the most meritocratic cryptocurrency on the market.

Ethereum (ETH) is the most well-known altcoin and the second-largest cryptocurrency by market capitalization. Its leading position in the programmable blockchain sector, growing institutional adoption, future upgrades and deflationary economics puts Ethereum in a league of its own.

Consider Different Sectors

Another way to diversify your crypto portfolio is by investing in different sectors within the sector. Not only does this allow you to benefit from growth in multiple sectors, but it also offsets portfolio volatility if one sector suffers significantly. A few promising sectors include smart contracts and metaverses. Unsure which cryptos to choose over the long term? No worries! Here are Benzinga’s best crypto investments for 2030. 

Consider Smaller Cryptos With Greater Growth Potential

Lastly, while investing in market leaders is generally considered safe, the downside is that it limits growth potential. To combat this, investors can allocate a portion of their portfolio to small cryptos with greater upside potential. Since these cryptos are less established than larger cryptos, it could require smaller positions to get higher returns, meaning that investors can benefit from more explosive growth. 

Investment Strategies

Once you know which cryptocurrencies you want to add to your portfolio, the next step is figuring out how you are going to accumulate these cryptocurrencies in an effective manner. You can use multiple strategies for investing in the cryptocurrency market; however, three strategies stand above all. These should be used in combination. They are as follows:

Dollar Cost Averaging

Dollar cost averaging (DCA) occurs when investors buy assets regularly in increments over a period of time — for example, on a daily or weekly basis. The strategy diminishes the effect of price changes from volatility by averaging out the price. It also eliminates the emotion of investing and allows investors to build portfolios in a meticulous and disciplined manner.

Buying the Fear

In hindsight, fearful times have often turned out to be the best times to accumulate cryptocurrencies at dirt-cheap prices. While market sentiment may fluctuate, the fundamentals of crypto projects are resolute and unwavering. 

Buying fear can be done in multiple ways. One approach is to use a sentimental analysis tool, such as the Bitcoin Fear and Greed Index, which measures the relative fear in the market on a daily basis. However, another strategy is to buy cryptocurrencies during bear markets, long down trends or after capitulation phases. 

The rationale for buying the fear stems from the fact that the cryptocurrency market is cyclical and heavily predicated on emotions. It is important to note that while buying the fear is a sound strategy, the underlying assumption is that the purchased cryptocurrency will rise in price at a future date; however, many cryptocurrencies never make it back to their all-time highs. 

Rebalancing Your Portfolio Regularly

Rebalancing can be a pivotal part of crypto portfolio management. Cryptocurrencies are inherently volatile. As prices change, you may need to buy and sell crypto projects to maintain a balanced portfolio that aligns with your initial diversification strategy.

For example, if a few of your smaller crypto investments increase in value, you may consider trading some of them for larger cryptocurrencies to keep your desired asset allocation.

Leveraging Crypto Portfolio Trackers

Last but not least, the best crypto portfolios have cutting-edge software that can be used to manage them. Being able to see winners and losers and assess your profit and loss in real-time is instrumental for keeping your portfolio healthy and positioned to meet your financial goals. Two great portfolio trackers that you can use today are as follows:

CoinStats

CoinStats is one of the best crypto portfolio tracker apps on the market with great transaction analytics, instant notifications and fast trading. It provides essentially unrivaled analytics and easy but still powerful customization. You can add multiple wallets and exchange accounts to track everything in the same app. CoinStats' alerts feature is also much more customizable than other portfolio apps. It's also surprisingly easy to set up alerts as well as import all of your various wallets and accounts.

Delta Investment Tracker

Delta tracker is a multi-asset investment tracking tool that allows users to manage various portfolios and track their live performance with many powerful charts and tools. This portfolio tracker is useful for investors who want to manage their crypto portfolio alongside portfolios in other asset classes, such as their stock portfolios.

CoinGecko

CoinGecko is a go-to crypto tool for investors of all skill levels. It provides a fundamental analysis of the digital currency market, allowing investors to easily navigate price, volume, market capitalization and major events associated with cryptocurrencies. The tool allows users to leverage live portfolios, which track their profit and loss and asset allocation. It is free to use.

Where to Buy Crypto

Major cryptocurrencies such as BTC can be traded on exchanges such as Coinbase, Gemini, Crypto.com and KuCoin. Many of these platforms allow you to purchase Bitcoin using your credit card, through swapping features or through different trading pairs such as BTC/USDT. 

Where to Store Crypto Safely

Hardware wallets and software wallets can be used to store cryptocurrencies such as Bitcoin. Hardware wallets are regarded as the most secure way to store cryptocurrency. With a hardware wallet, the only person who can access your crypto is you because it keeps your private keys offline. 

Software wallets enable crypto holders to securely store their digital currencies and tokens in one place. These types of wallets allow users to buy, swap, lend and earn cryptocurrency in an efficient manner. The Coinbase Wallet is an example of a software wallet. 

Best Hardware Wallet: Ledger

Ledger claims to offer the highest level of protection for crypto assets, making it an excellent option for a hardware wallet. In addition to Bitcoin, Ledger hardware wallets are compatible with more than 1,800 altcoins including Ethereum (ETH), Dogecoin (DOGE) and Chainlink (LINK). 

Best Software Wallet: ZenGo 

ZenGo is one of the most secure mobile crypto wallets in Web3. Leveraging MPC technology, ZenGo removes the vulnerability of the need for a private key, making it much more secure than traditional crypto wallets. ZenGo allows users to buy, sell, send and receive Bitcoin and many different altcoins in a secure manner.

Closing Thoughts

The cryptocurrency sector offers a lot of growth potential. The number of cryptocurrency investors around the world has steadily increased, with recent growth being explosive. However, what’s needed to capture the growth of the cryptocurrency industry is a strong crypto portfolio. 

If you follow the steps provided, you have the chance of gaining an edge in the market. However, it is important to note that even the best cryptocurrency portfolios do not guarantee success nor is any of the guidance in this article financial advice.

The high-risk nature of cryptocurrencies and uncertainty regarding government regulation makes investing in cryptocurrencies inappropriate for the faint of heart. Prudent investors will only invest money they can afford to lose. For the most up-to-date cryptocurrency prices, check out Benzinga’s table below.