How to Build a More Diversified Crypto Portfolio in 2023 (And Beyond)

crypto portfolio

Approximately 16% of Americans have used, invested, or traded cryptocurrency. Cryptocurrency became popular in the 2010s, but now, more than 12 years after its release, it’s become a highly debated topic due to its many risks and potential lack of value. 

To lower financial risk and increase the value of your portfolio, you must diversify your investments. However, how does one go about diversifying their portfolio?  

Don’t worry! We’ve investigated everything you need to know about portfolio diversification. That way, you can limit risks and grow your crypto account today.  

Now, are you ready to get started? Here’s an in-depth look at diversifying your cryptocurrency portfolio: 

Why Is Portfolio Diversification Important?  

Think of crypto like stocks; you don’t want to invest in only one stock or bond. If you do, you’re tethered to that particular stock, and if the price plummets, so will your entire portfolio.  

You risk losing money and the ability to grow your portfolio if you only invest in one cryptocurrency, even if it’s a popular coin like Bitcoin or Ethereum. 

Both cryptocurrencies have seen their share of price swings. For example, early in 2021, Bitcoin’s value grew when Coinbase was launched. However, its value didn’t stick; a few months later, Bitcoin prices dipped as critics called out its lack of energy efficiency.   

So instead of putting all your eggs in one basket, you’ll want to diversify your portfolio, which means investing in various coins, tokens, and projects. There are over 200,000 available cryptocurrencies, so you should be able to find two or more you like. 

When you diversify your portfolio, you can also make more money. You can use that money to pay your needed expenses or buy additional crypto coins to grow your portfolio. It’s a win-win, both for you and your portfolio. 

Common Strategies to Diversify Your Crypto Portfolio 

When it comes to diversifying your portfolio, there is no one-size-fits-all strategy. Instead, it’s based on your interests, what you want to gain, and how you want to invest. Below we’ve included a couple of ways to diversify your portfolio to get you ahead of the game. 

Invest in Different Use Cases

One of the most common ways to diversify your portfolio is to invest in cryptocurrencies with different use cases. After all, crypto has various applications. It can be used to buy or sell products, engage in smart contracts, and have unparalleled privacy.  

For instance, Bitcoin was developed as a virtual currency, while Ethereum offers smart contracts to help develop virtual apps. Not to mention, Ripple helps make money transactions easier within financial institutions. All three are crypto, but all three contain a different intended use. 

Investing in different use cases can help expand your portfolio, making it balanced and complex. Beware, this method isn’t the easiest and takes a lot of research and analysis to find assets that are best for you. 

Use Different Locations  

Who says you can only invest in local cryptocurrencies? The great thing about crypto is there are no borders that separate you from making money. You can invest in any crypto you want, including those based overseas. 

There’s actually an advantage to investing in different locations. You see, different locations have different regulations; some have strict regulations, while others offer greater flexibility.  

For example, Portugal is often a top location used by investors. Its cryptocurrencies are not only popular but provide security against being taxed. 

To diversify your portfolio invest in both local and worldwide assets. You don’t want your money to be tied to one or the other entirely. So, investing in both ensures that your portfolio will be well protected even in an unpredictable and sometimes unstable market. 

When investing in global assets, do proper research. Avoid investing in assets that are over-regulated by the government. Instead, invest in assets where the country has encouraged the use of cryptocurrency and is expanding its use.  

For instance, El Salvador was one of the first nations to embrace crypto, going as far as wanting to build a tax-free crypto city that’s run completely on digital currency. Places like El Salvador that see cryptocurrency’s potential are places you want to invest in. 

Other good countries to invest in crypto include Japan, Australia, and Canada. However, don’t invest in cryptocurrencies based in China, Morocco, or Egypt; these counties have either banned crypto or have limitations that can make investing in crypto difficult. 

Diversify Risk Level 

To ensure a balanced portfolio, you must diversify your portfolio among different risk levels. To do that, divide your investments between low, medium, and high-risk, then assign them a weighted percentage. The weight helps you calculate how much of your portfolio is secure or at risk. 

Now, don’t invest in too many high-risk cryptos. While they may promise larger gains, there’s also a chance that you can lose money from them. 

So plan your investments carefully; first, add relatively stable, low-risk cryptos you can count on. These can include popular currencies like Bitcoin or Ethereum. 

Then add a few smaller currencies that have the potential to grow into stable or popular currencies. These medium-risk cryptos may air more on the low-risk or high-risk scale since they are indeed in the middle. 

However, rather than try to figure out which scale they’re on, do some research and see their potential. For example, are they going to become the next popular currency, be devalued, or be absorbed into a new currency within the next five years? Doing this type of analysis will help you decide what medium-risk cryptos are worth it and which are not. 

Finally, make several investments in high-risk cryptos to balance out your portfolio. High-risk cryptocurrencies often include Dogecoin, Apecoin, and XRP. 

Now, that’s not all; you’ll typically need to replace your portfolio every couple of months. To do so, evaluate the total weighted percentage you’re investing, then either increase or decrease your investment to balance your portfolio to your needs. 

Invest by Industry 

Another way to diversify your portfolio is by owning cryptocurrencies and their blockchains that are utilized in different industries. For instance, you can invest in healthcare, automotive services, insurance, and entertainment. This is where your interests come into play. 

You can invest in social causes or in video games you like. The possibilities are endless; after all, for video games alone, there are more than ten different cryptocurrency types. 

As always, make sure you do your research. Industry cryptos are great for expanding your portfolio; however, they can be a bit volatile. Since they rely on the industry, any negative news or company scandals can lead to values plummeting. 

If you want to invest in an industry cryptocurrency that’s low risk, choose one that deals with a cause or charity. Valuation is unlikely to change since there’s less unpredictability. 

Invest By Blockchain Type 

Blockchains are truly the bedrock of cryptocurrencies. After all, blockchains can determine the number of transactions, a cryptocurrency’s potential, and other key details like its popularity. To diversify and grow a portfolio, investors often look at one or more types of blockchains to invest in. 

So let’s take at the type of blockchain that exists. Generally, there are four types of blockchain: public, private, consortium, and hybrid. 

A public blockchain is indeed public; thus, no one person has control of the blockchain or its features. For example, Bitcoin is a public blockchain. 

Whereas in a private blockchain, a single person controls the blockchain and makes decisions for its currency. Monero is a popular example of a private blockchain. 

A consortium is where a group of people collectively control a blockchain and make decisions for it. There are many examples of consortiums, including, BankChain, Fundchain, GBBC, and B3i. 

Now, in a hybrid blockchain, an authority figure does have some control of the blockchain, but other parts are decentralized. Some examples include Eidoo, Stoxum, and Binance DEX.  

Rather than divide your portfolio into risk levels, you can divide your portfolio based on blockchain type. It can be riskier since some types may be more volatile than others. However, if you only have a small amount to invest, it’s a great way to diversify your investments and automatically grow your portfolio. 

Grow Your Crypto Portfolio Today 

Diversifying and growing your crypto portfolio is not as easy as it sounds. Our five methods can help you launch your investments and create a balanced portfolio so you can weigh the losses and gains.  

However, if analyzing crypto and creating a crypto strategy is difficult for you, we at Truecode Capital can help. Our experts can teach you about crypto investing so you can make the right move for yourself. 

Contact us today to learn more about risk assessment and the crypto market. 

Learn More: Take the crypto quiz

Take a three-minute quiz to learn how to become a more confident crypto investor.

When you take the quiz, you’ll get a 15-page PDF report summarizing your qualifications:

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