Gainium Logo

Do you own crypto? Then you have a crypto portfolio. In simple terms, a crypto portfolio is all the tokens that you own. Whether you are a trader or an investor, having a good portfolio management strategy is essential to improving your returns over time. If you are just starting and want to develop a well-balanced portfolio or if you already have one but would like to learn more about managing it optimally, then this article is for you.

What is crypto portfolio management and why should you do it?

Crypto portfolio management is about using a proven system to profit from crypto in the long run.

Traders and investors can quickly succumb to fear or greed and make decisions that could potentially put their portfolios at risk. Therefore, having a proper portfolio management system in place can help you keep your emotions in check and save yourself from painful mistakes.

How to effectively build and manage your cryptocurrency portfolio

1 - Setting your crypto portfolio allocation/diversification

Having the right diversification in place is essential to reducing the risk of volatility. By investing in a variety of different cryptocurrencies, you can mitigate your risk and ensure that you're not putting all your eggs in one basket. Although most crypto assets are correlated, small-cap crypto assets experience much higher volatility than big-cap tokens such as Bitcoin, Ethereum, and BNB. Therefore, by having the right mix of crypto assets you can enjoy the potential high rewards of small cap tokens while safeguarding your portfolio from the violent ups and downs they can often experience.

Diversification is also important to avoid the risk of total capital loss associated with black swan events that might impact a particular coin. There have been notable examples of crypto assets losing 99% of their value overnight,  and while these events are rare, they can still happen. By spreading your portfolio across a large number of crypto assets, you can smooth out the ride and protect yourself from complete loss in case one of your investments were to experience a significant drop in value.

You may be wondering, how to find the perfect allocation. When it comes to diversification, there is no perfect answer and every portfolio is different. A good starting point would be to have at least 30 different crypto assets, and then you can rebalance from there as you see fit. Make sure to include a good mix of crypto asset categories (smart contracts, gaming, metaverse, stablecoins, Defi, etc.) and blockchains (Ethereum, Solana, Polygon, etc.)

Another key factor to consider when allocating your crypto portfolio is your risk tolerance. If you are willing to take on more risk, then you can allocate a higher percentage of your portfolio to small-cap and mid-cap crypto assets. However, if you are risk-averse, then you might want to keep a higher percentage in stablecoins and big cap tokens.

While the mix of cryptocurrencies can vary to your liking, I think it's important to discuss a special role in your portfolio allocation: Stablecoin. How much stablecoin should you keep in your portfolio? This depends on your risk tolerance. If you are a risk-averse investor, then you might want to keep a higher percentage of stablecoins than crypto investors with a higher appetite for risk. Stablecoins are great to have in your portfolio not only because they provide stability and can act as a hedge against market volatility; but because you can quickly use them to buy more crypto when prices are down. I personally always keep somewhere between 30-50% of my portfolio in stablecoins such as BUSD, USDT, and USDC.

2 - Dollar-cost averaging (DCA)

Once you've diversified your crypto portfolio, it's important to dollar cost average of your investments. This simply means investing a fixed amount of money into your portfolio regularly. This will help you smooth out the price fluctuations and protect yourself from big losses. For example, let's say you invest $100 into your crypto portfolio every week. If the price of Bitcoin goes up $50 one week and down $50 the next week, you're still investing the same amount of money. This helps to protect you from volatility and gives you a chance to buy more crypto when prices are low.

Dollar-cost averaging is a great way to build your crypto portfolio over time and it's something that I do on a regular basis. If you're new to investing, I would recommend starting with a small amount of money and then increasing it as you get more comfortable with the process.

3 - Portfolio tracking and rebalancing

As the market ebbs and flows, some of your crypto assets may grow in value while others drop in value, causing your portfolio allocation to differ from your original plan. That's why it's important to track your crypto portfolio over time. This will help you see how your investments are performing and make adjustments as needed. By rebalancing, you can sell off the assets that have done well and buy more of the assets that have done poorly. This will help keep your portfolio aligned with your risk tolerance and investment goals.

There are a variety of different crypto portfolio tracking apps that you can use. Some popular options include Blockfolio, Delta, and CoinMarketCap.

4 - Exit Strategy

An exit strategy is another important part of crypto portfolio management. This is because crypto assets are often very volatile, and you need to take advantage of the market conditions.

Defining your exit strategy is simply planning when you will buy or sell.  In other words, when do you plan to take profits, limit your downside, increase your exposure or reduce your exposure to crypto assets depending on market conditions.

Crypto investors should get into the habit of taking profits regularly. This will help you lock in your profits and protect yourself from any major market crashes. By taking profits regularly, you're also able to invest those profits back into crypto when the prices are low.

You should always have a selling plan in place. This means that you should know at what price you will sell your crypto assets and take your profits. This will help you stay disciplined and ensure that you don't sell too early or too late.

For example, what would you do if the price of a crypto asset goes up by 30%? You may decide to lock in some profits and sell 25% of that token. What about if the price of a crypto asset goes down by 20%? Perhaps you would like to take an additional risk and buy more of that asset, or perhaps you would like to sell a portion of that asset to limit your downside. The specific actions you would take in any case depend on your trading style and risk tolerance, but what's more important is that you do have a plan and that you stick to it.

Skyrocket your profits with the most advanced trading bots in the market

Gainium logo

Gainium - Empower Your Crypto Trading: Research, Deploy, Analyze | Product Hunt

Gainium Pte. Ltd.
68 Circular Rd. #02-01 Singapore (049422)


All rights reserved. Copyright © 2024.

Gainium is a publisher of financial information, not an investment adviser. We do not provide personalized or individualized investment advice. Cryptocurrencies are volatile investments and carry significant risk including the risk of permanent and total loss. Past performance is not indicative of future results. Figures and charts are correct at the time of writing or as otherwise specified. Live-tested strategies are not recommendations. Consult your financial adviser before making financial decisions.