In this article, we’re going to reveal the best bitcoin investment strategy and explain what a portfolio is, how crypto portfolios differ to regular investment portfolios, and tell you how to start building your own.
The crypto market is famous for its volatility. The price of even the most stable coins is constantly changing and if you look back at market history, some once changed as much as 30% in a single day. To master the crypto market and make prudent bitcoin investment decisions, most experienced traders create a balanced portfolio of cryptocurrencies instead of investing all of their money into one coin to reduce risks in a volatile market.
Bitcoin investment tip #1: start building a crypto portfolio
A Crypto Portfolio is the total amount of an investor’s crypto assets, which they have collected to achieve some kind of financial goal. Building a crypto portfolio is a type of bitcoin investment strategy, and the main idea of having a portfolio is diversification. This means investing into different assets to minimize your risk of losses, should some of your assets suddenly fall in value. Put simply, if you invest €1000 into just 1 asset, you could lose all of your money if the asset crashes in value.
However, if you had invested €1000 into a variety of assets, you would only lose a percentage of money invested in that particular asset, and hopefully the performance of your other assets would counteracts your losses. This bitcoin investment strategy’s pretty straightforward, although there is a lot of difference between a Crypto Portfolio and a Traditional Investment Portfolio:
In crypto portfolios, diversification has a different meaning
In Traditional Investment Portfolios you can have stocks, bonds, currencies, real estate and more. In a Crypto Portfolio you have only one type of asset - cryptocurrencies. Diversification is made not by investing into different types of assets, but by investing into different kinds of cryptocurrency (eg. BTC, ETH, XRP).
Building your crypto portfolio is a way easier
While building a Traditional Investment portfolio you will end up creating lots of different accounts and signing a lot of documents to set up each investment you make. To make a bitcoin investment and create your crypto portfolio, you just need one crypto exchange account - it’s a one stop shop.
You can build your crypto portfolio without a huge investment
Most traditional investors will say you need least few thousand euros to start investing seriously, but in the case of a crypto portfolio - you can start investing with as little as you want - all you have to do is deposit the minimum amount your crypto exchange requires which is usually around €40.
The high volatility of cryptocurrencies allows you to get profit even with a small investment amount - the most important thing is to follow your bitcoin investment strategy and create a good balanced crypto portfolio. Nowadays there are more than 1000 cryptocurrencies on the market, so you need to be careful which you invest in.
Bitcoin investment tip #2: pick coins for the crypto portfolio wisely
As we already mentioned, an important part of a strong portfolio is a high level of diversification. Experienced traders advise to have from 3 to 9 coins into your crypto portfolio. But what criteria should you use to pick your coins?
First of all you should analyse: Is there an original idea behind the project? Does it have any practical use? Does it solve a user problem? Maybe it is offering better privacy of transactions than other cryptocurrencies, or allows faster exchange of assets? Find out what sets your coin apart to make a wise bitcoin investment decision.
Rate change tendencies
Here you should pay attention to the crypto currency rate behaviour over a long timeline. Were there any dramatic rises or falls? What is actual market rate, total trading volume and average trading volume a day?
If trading volume is rising, new capital is always being added to this cryptocurrency, but it’s also important to check that this new capital is a reaction to the coins popularity growth, rather than a growth in trading volume caused by fraud scheme ‘pump&dump’. Experienced traders find the answers by attentively checking the cryptocurrency charts. Also, many of them advise only adding coins to your portfolio which have a market cap of more than $100m USD.
For bitcoin investment purposes it’s better to choose currencies with a professional community behind the project. It’s a good sign when they are open for feedback - for example when there’s an open community chat or developers platform.
It’s really important to check where a coin has been mentioned in the media. Does it have mentions on the important crypto resources? Does it have related discussions on professional crypto community forums like bitcointalk.org? Are there any news pieces about manipulations connected with the coin?
According to experts - the trick to the perfect bitcoin investment is to mix popular, expensive and cheap, but prospective cryptocurrencies.
Bitcoin investment tip #3: keep the best practices in mind
If you’re new in crypto world, it’s a good idea to start with a so-called ‘conservative crypto portfolio’. It’s spreads risk and as a result safer for you and your money.
Here’s a typical formula for creating a conservative crypto portfolio:
- Top cryptocurrencies (like BTC and ETH) - 80%
- Less popular, but also highly demanded coins (For example, BCH, XRP and others) - 15%
- Cheap coins with high expectation to grow - 5%
By using this formula, you can minimize your bitcoin investment risks since you’re investing a majority of your money into the most trusted cryptocurrencies. You invest only 5% into high-risk projects, so in case of a dramatic collapse you won’t lose too much.
Experienced traders tend to use a so-called ‘aggressive portfolio’. The amount of popular and stable cryptocurrencies here is less, instead there are more investments into altcoins and even ICO projects (a very popular but highly risky tool).
Here’s an example formula of such a portfolio:
- Top cryptocurrencies - 60%
- Altcoins - 25%
- ICO - 15%
Many investors also use a ‘buy & hold strategy’ - this is when you buy a coin and wait for its price to reach the maximum. This can work, but there is always a risk that you buy an already overpriced coin and never see it’s price go up again, so be careful and make a complete analysis before making a bitcoin investment decision.
Bitcoin investment tip #4: avoid typical mistakes when building you crypto portfolio
Wrong choice of cryptocurrency
Very often newbie traders follow the hype around the cryptocurrencies and invest in literally the first cryptocurrency they see or invest in one they think looks very promising. This is very risky and not something any trader would recommend.
Unprofitable investment distribution
If you don’t have any experience, it’s better to use a well-known scheme of making your crypto portfolio. Don’t distribute bitcoin investments without guidance - or there is a high possibility that you will never see the profit.
Ignoring safety requirements
Only use highly secured cryptocurrency exchanges or crypto-wallets. Otherwise, your money might be stolen by hackers. Once a hacker has your money, it’s unretrievable.
Lack of flexibility
Today it will be better to invest in a certain list of cryptocurrencies, and in a few months times it might be different. Your portfolio should be flexible - from time to time you should delete coins which are losing their market potential & value and add new, promising coins.
Bad timing in buying and selling
Basic trading knowledge states that for profit to be made, cryptocurrency should be bought at a low price and sold at a high price. Even if you have chosen the right coins, but were buying and selling them not following this rule, the profitability of such investment is limited.
So... is it worth me creating a crypto portfolio now?
Absolutely - It’s a great time to start in crypto and make your first bitcoin investment. Because of the high volatility of crypto market, investments should be always be diversified and making a portfolio is the best way to earn money, minimize your risks and understand the cryptocurrency market better. We’re here to help you kick off your journey into crypto - so take advantage and click here to try out GetEx now!