Congratulations on your decision to start investing in cryptocurrency! The growth in this space is just beginning, and smart investors willing to take a chance on it stand to be rewarded in the future.
In this article, we’re going to discuss how to build a good cryptocurrency portfolio and some of the mistakes that people generally make when trying to do so. While this list is by no means extensive, it should give you a good idea of how to get started.
There’s obviously a lot more information to consider here, but fixing just a few of the items on this list could have a dramatic effect on your returns. Just remember that everyone is different, and you don’t have to follow any investment strategy one hundred percent. Your decisions must be based on your situation, and your individual financial goals. Okay, let’s get started!
As a new investor, it’s easy to see a killer project and think that you have the next Bitcoin on your hands. Unfortunately, many of these individuals fail to take the supply of the asset into consideration. Part of the reason for Bitcoin’s astronomical growth is the fact that the supply is severely limited.
If you invest in a coin that issues billions of tokens then you can’t expect it to experience the same growth in price. There’s simply too many of these coins or tokens being dumped on the market. If you want to figure out the price potential based purely on the supply then you could compare it to another successful project with similar numbers.
While the supply is not the end all of investing, it should be considered and many people forget to take it into account. Be sure to have more realistic price goals for projects with high supply. This can be particularly apparent for coins which have airdropped their entire supply at once!
This not only makes it very difficult for price appreciation, but it can also bring the decentralization of the project into question since they likely were distributed to very few people.
Yes, the project you picked might be great, but it’s still not a good idea to keep all your eggs in one basket. Diversification is important, and if you don’t spread out your risk then you could be in big trouble if your project has a spot of bad news coming its way. Putting your money into multiple projects is a great way to keep your entire portfolio from crashing based on a single event.
How you choose to do this is up to you, but you could consider diversifying based on different sectors such as banking, healthcare, IOT, or logistics. You could even diversify by country or with projects that are in the same industry if you believe multiple options could be successful. It’s likely that in most niches there will never be one winner, and there will be room for multiple projects to succeed.
Similarly, market cap is a popular way to diversify as it allows you to take advantage of the growth potential of small caps while keeping some money in safer large cap options as well. It might help to write out your potential investments on a sheet of paper, and then create allocations for each of them based on some of the above criteria. If you find that you’re too exposed in some areas then you may want to swap some things around for your own protection.
Investing requires not only that you commit monetary resources but also time-based ones. In order to pick a good investment, you need to spend a good deal of time doing research. Before you start throwing money around you should know everything about a project. This means reviewing not only positive information but also negative reviews.
It’s easy to become emotional about your investments, and that allows you to ignore potentially dangerous red flags about the integrity of a project or its team. Don’t write off every critique of a project as FUD. If these complaints have merit then you’d better get the real story before you invest your money.
Make sure to find out whether the coin has a use case, what kind of marketing plan they have, whether the team is capable of accomplishing their goals, if they have a good community behind them, etc. Never accept any investing advice without verifying it yourself first.
Cryptocurrency has a remarkable amount of impatient people in the space. Many of them somehow feel entitled to be rich after holding for just a couple of months, and when they aren’t they sell everything, sometimes at a loss. Don’t be this person. Often times these mistakes arise from not having clear goals.
When you research a project you should set a target price, and then challenge yourself not to sell until this price is reached. Some people believe in selling half of their investment if it doubles, and then they will keep the rest. However, you can set whatever rules you want as long as you’re willing to stick to them.
Flip-flopping and not having clear financial goals is a good way to lose money, and you should avoid this type of behavior. If the market’s ups and downs are making you nervous then stop looking at it. Forbid yourself from watching the charts every hour to save yourself from making trading mistakes.
The market cap of a coin helps you to determine the return you can hope to expect. While you can make money in any market cap, it is easier to do it on small-cap coins. They simply have more room to grow. Many investors either only invest in large cap assets, which limits their growth potential, or they only invest in small-cap assets which leaves them dangerously exposed to more volatile markets.
If you’re in the latter party, remember to take some profits off the table and put them into some larger cap coins like Ethereum for safe keeping. If you’re in the first camp, then consider making some small-cap investments as well to up the growth potential of your portfolio.
This is likely the first place you should look when trying to diversify your holdings. Keep in mind that small caps tend to take the biggest hit when the market falls. So don’t put too much of your portfolio here. Decide on a healthy balance and stick to it.
In closing, there’s many things to consider when you begin building your portfolio. These entries are suggestions, but keep in mind that your exact approach may vary from others. You won’t always make the right moves, but it’s important not to get hung up on minor setbacks.
Instead, you should see these as learning experiences and grow from these mistakes. You can use these instances to improve your holdings for the future. You should also remember that investing is a long game. Don’t get discouraged if you aren’t making money right away.