When it comes to investing, everyone thinks in terms of wins and losses, as if the system was completely binary and these were the only two outcomes. In reality, while a certain token can only go up or down, you never know which will do what, which is why the only way to stay safe is to diversify.
Diversifying your crypto investments is not a simple thing, and even those with a diverse portfolio (traditional investments) may struggle to diversify their crypto assets. In order to help you out with this, here are a few tips you should definitely be aware of.
1. Find high-reward cheap cryptos
Investment is all about risk management. You’re looking for a good risk-to-reward ratio. This means that you invest little with little chance of success, but when you win, you win big.
Look at it this way: imagine if someone told you that you could invest $10 and have the potential to win $100,000. Would you do it? Well, probably! Why? Mostly because if you lose, you’ve lost just $10. The same goes for buying cheap crypto; you’re not really exposing yourself too much (win or lose).
This aligns pretty well with one of the best overall investment tips - the idea that you should never invest more than you can afford to lose. Some of these cryptos are so cheap that you can make investments that are so low that they won’t hurt you, regardless of your budget. At the same time, the potential gain (due to them having a high potential profit margin) could be quite substantial.
Generally speaking, what you’re looking for are cryptocurrencies that range from cheap to cheapest. However, you don’t just want them to be cheap. Remember, you’re not gambling, you’re investing.
Therefore, you need to find reviews made by experts that cover some of the best low-cost cryptocurrencies. Sure, communities are sometimes the first to pick up on these coins but, most of the time, if it’s too early, these coins will just fly under the layman’s radar. They will bring up some new coins, but these claims of future growth will, most of the time, be unfounded in anything substantial.
So, look for specialist reviews instead.
2. Invest in different use cases
The next thing you want are coins that have different use cases. While cryptocurrencies are often seen as money, this is only the case for its oldest and most commonly known form - transactional currency like BTC. This is an alternative to traditional fiat money, and it’s a great store of value. Other than that, it has practical uses in transactions.
The next form you have to consider is stablecoins. These are cryptocurrencies whose value is tied to another asset. This can be a commodity like gold or silver, but it could also be a fiat currency like USD, EUR, or GBP. The bottom line is that since their value is in direct correlation to this other (bigger) asset, it’s less volatile (which also explains the etymology).
Utility coins are designed to act as on-platform currency, gatekeeping certain services, functions, and various tools. AI coins do so for some AI platforms, which makes their value directly tied to the usefulness and demand for those platforms’ services.
Decentralized Oracle networks provide real-world data to smart contracts on the blockchain. It’s worth mentioning that self-executing (smart) contracts are an incredibly fast-growing market. This makes the potential behind this type of token pretty high.
Other coins are directly tied to chain management and logistics. Their development aims to improve the transparency, efficiency, and traceability of supply chains.
The most important thing to keep in mind is the fact that you don’t really have to understand these types of coins in order to use them or invest in them. Still, it helps if you do.
3. Buy cryptos on different blockchains
Buying cryptos on different blockchains is generally a good idea, but it’s not necessarily an intuitive one. Why? Well, because the biggest blockchain (Ethereum) dominates a huge portion of the market, and its competitors are a lot smaller. To some, this makes it seem like it isn’t even worth the bother.
Still, there are several compelling arguments as to why this is such a good idea.
First, you get access to different features and technologies. Different blockchains offer different features, consensus mechanisms, and smart contract functionalities. These are technologies that are still young, and it’s fairly uncertain which of them will come out on top.
Second, you’re exposing yourself to different ecosystems and communities. Each of these blockchains has a different team behind them. They also have different growth dynamics, innovation cycles, and adoption trends.
Different blockchains have different options for earning passive income, as well. For instance, while most give you yield on investments (similarly to what dividends would do), others give you options for liquidity mining, staking, and yield farming.
The bottom line is that this is still a very young industry, and you have no idea what the future will bring. This is why it’s so important that you position yourself so that you benefit regardless of the direction that blockchain development takes.
Remember, this is a tech field, which means that no matter who came there first, the most pragmatic system is the most likely to come out on top. It’s better to play it safe.
4. Buy cryptos belonging to different sectors
Cryptocurrencies are quickly penetrating every single industry, but this is just one way to look at it. You see, due to this codependency, a lot of developers are making their cryptos with these respective industries in mind. So, one of the approaches to diversify would be to invest in cryptos from different industries.
Naturally, the banking and financial fields are the first in this race due to the purely transactional nature of early cryptos. Now, however, these things are slowly starting to turn around.
The explosion of ChatGPT has ushered in the era of AI, which has led to the massive expansion of these technologies. The predictive capabilities of AI will enhance security and efficiency in various applications, especially cybersecurity. This has led to a much higher codependency between the blockchain industry and AI.
AR and VR coins are another such technological frontier. In the past few years, a lot of people have lost faith in this technology, mostly because the development wasn’t as quick as they expected. Still, with the introduction of Vision Pro, there was a significant leap in spatial computing and drawing mainstream attention to AR and VR. This could mark a huge milestone in this field and benefit cryptocurrencies, as well.
The list doesn’t end there; layer-2 networks, layer-3 blockchains, stablecoins (which we’ve already mentioned), and even meme coins are all worth considering. Just remember what diversification is all about, and you’ll understand that the wider you go, the closer you’ll hit the mark.
Diversification is there to keep your investments safe
You never know how the market will behave, which is why you need to learn how to diversify your crypto portfolio the right way. For this to work, split your portfolio according to different factors, ranging from blockchain platform and market capitalization all the way to use cases and sectors they belong to. The more factors you use, the better.
