Diversify your crypto deck  

It’s not enough to have a crypto portfolio. You need to have a well-balanced one. What does that mean? Don’t put all your eggs in the same basket.

Published: 02nd January 2022 05:00 AM  |   Last Updated: 01st January 2022 08:45 PM   |  A+A-

Express News Service

It’s not enough to have a crypto portfolio. You need to have a well-balanced one. What does that mean? Don't put all your eggs in the same basket. Diversification is key. "It safeguards you against volatile market cycles. It offers better results over time. The chances of calamitous falls reduce exponentially," says Delhi-based crypto broker Jagbir Singh.

We're operating within an entire universe of new and emerging cryptocurrencies. "Diversification is a strategy being used more widely today. By owning multiple assets that perform differently, you reduce the overall risk factor of losing money. It gives you a broader view of the market, offering you much more choice in terms of building new products. It's particularly great for small-scale investors or those just beginning to dabble in crypto," says Singh.

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The thing to remember here is that investing in high-performing cryptocurrencies is not enough. "You must study the underdogs. And do try and look beyond Bitcoin. Some of the top ones right now are Ethereum (ETH) at a market cap of over $557 billion, Binance Coin (BNB) at over $104 billion, and Tether (USDT) at over $73 billion. The lesser-known cryptos that can be a good bet right now constitute PomPom, NoleCoin, Stellar Lumen, Komodo and 99Starz and others," says Singh.

Irrespective of which way you go, conduct thorough market research. "Ask your crypto manager three simple questions: the prices of all cryptocurrencies, past trends, and potential for the future," suggests Singh. 

When diversifying your portfolio, looking at different industries is crucial too. This will help you build a dynamic collection of coins that provide solutions for a wide variety of industries and not just one. This reduces the risk of losing money should a specific crypto act up. Equally important is to follow this strategy geographically. "Don’t put your funds in crypto projects from one country," says Singh.

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Before you hop on to the diversification game, Singh warns against over-diversification. This can dilute returns. "Buying too many cryptocurrencies looks lucrative at first but given its notoriously volatile nature, it can amplify risk too. Besides, there are large transactional costs and taxes to factor in with over-diversification," he says. "Diversification can be complicated and overwhelming. It needs time, understanding, patience, and skill but in the end, it can be your moment in the sun.” 

(The advice here is of the expert quoted in the article, not of the newspaper)


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