Are you a professional investor? If so, then you would know how important diversification is when it comes to investments. In reality, this principle is the same for investments in cryptocurrency. Investments in cryptocurrency have proved very profitable for investors, especially in 2017, when almost all digital assets have reached the highest level. However, its rapid ups and downs have caused losses for investors who have not yet expanded their cryptocurrency portfolio. Follow this brief guide to learn how to diversify your portfolio in the right way.
Why diversification is necessary
The younger generation makes up a large proportion of the total cryptocurrency investors. Perhaps it is not surprising that they are more active in cryptocurrency trading robots like Bitcoin Trader. Bitcoin quickly became the asset class in which young investors invested first. However, these traders have also fallen prey to hype, FUD and false attraction for various coin projects.
Diversifying your portfolio means allocating funds in multiple places so you can spread the risk. An experienced investor will invest in different stocks rather than in one action so that if the price of one share falls, the others will be there to recover the loss. Plus, you will not lose all your money in one shot.
This strategy is also applicable to cryptocurrency. Unfortunately, people do not give much importance to diversification because they lack basic knowledge. If you want to avoid making the same mistake, follow the steps below to understand the categories of cryptocurrency in brief:
Traditional – Considered the most common category in cryptocurrency, this system uses the digital currencies of investors and is called the blockchain. Here, companies have the opportunity to maintain open transactions with customers with the help of an immutable public ledger. The most popular traditional cryptodes are Litecoin, Bitcoin Cash and, of course, Bitcoin.
In addition to the aforementioned encrypted, private currencies are another type of currency that offers great anonymity to investors like Monero, Dash and, ZCash.
Platforms – IT experts have considered Bitcoin a threat to banks. However, platforms have the ability to bring about positive change to both society and the economy. Unlike traditional coins used to pay for services and products, these coins are used to create a blockchain infrastructure that implies apps and smart contracts.
When it comes to the most popular blockchain platform, Ethereum is the one that made the biggest difference. Digital coins were created using the ER20 protocol. In addition to this, EOS, Neo and EOS are also some of the most successful platforms.
Utility tokens – these are industry-specific and are created by maintaining a platform protocol as a basis. You will find utility coins used for the lease of computing power, supply chain management and market analysis.
Once you understand the various categories of cryptocurrency, you will be able to make correct decisions about the coins you want to invest Yes, you certainly would not want to stick to traditional cryptocurrencies and invest all your money in this category. Try to distribute risk by investing in tokens and utility platforms.
In addition to spreading risk, diversifying your cryptocurrency portfolio will also help you gain experience in market capitalization. You will have an idea of which coins you should buy later. When the market is high, you understand that the coins would be more stable. There are encrypted investors who believe in investing in all types of coins with market capitalization. There is the possibility of earning more with low-cap coins, but those with a higher cap enjoy more stable market growth.