While the potential for rewards in cryptocurrency is vast, it can also be very volatile. It can get confusing for investors, but all you need to do is take a step back and remember the basics of investing in any asset class. You can adapt investing principles from stocks and real estate to create a diversified crypto portfolio that aligns with your risk tolerance and financial goals. Here are 10 safe ways for you to invest and diversify into cryptocurrency:
Look at Market Capitalization
If you already have an investment portfolio and want to invest in cryptocurrency, one of the safest ways to do so is to invest in cryptocurrencies with large market caps. Market leaders in the space tend to offer more stability, unlike smaller cryptocurrencies, which have higher risks of being affected by market volatility.
Consider Dollar-cost averaging
Dollar-cost averaging is when you invest a fixed amount of money at regular intervals, say every week or month, regardless of the price. You don’t try to time the market in this strategy. You invest, for instance, on the 15th of every month. Using this strategy, you get more coins when prices are low and fewer when they’re high. Over time, this averages out your buying price. Dollar-cost averaging lets you build your crypto portfolio steadily. It saves you the trouble of monitoring the markets daily and deciding when to buy.
Consider Use Cases of Different Currencies
Cryptocurrencies aren’t just about price! Different currencies are created for different purposes. Some are used to power decentralized finance (DeFi), and some facilitate fast payments. Investing in cryptos with diverse use cases spreads your risk and targets specific areas with growth potential.
Do Your Research
Look into the existing coins and tokens and compare market prices and performance to ensure that the ones you invest in have growth potential in the future. Don’t simply rely on crypto influencers or social media hype. When you know what you are getting into, you can avoid scams and make informed choices. Research whitepapers, check out the background of the founders, and understand the technology the crypto employs before deploying your funds.
Tokenized Assets
Tokenized assets offer an alternative route to crypto investments. Instead of buying crypto directly, you can buy real-world assets represented by tokens: Stocks, real estate, and art. These tokens are traded on blockchain platforms. You can use them to gain fractional ownership if you can’t afford to buy an asset outright. For instance, you can buy 10% of a piece of art using tokenized assets.
Invest in Crypto with Growth Potential
When It’s very tempting to invest only in established crypto if you are a conservative investor. However, it is equally important to actively research smaller cryptocurrencies with high growth potential. They could present a great investment opportunity. Although smaller cryptocurrencies have higher risks, some flourish in the volatile space and can become highly profitable. Therefore, thorough research is required to decipher which currencies have high growth potential.
Manage your Portfolio
A balanced crypto portfolio may require multiple steps to ensure investment success. Therefore, it is important that you manage your portfolio well. This can include steps like buying new cryptocurrencies or selling crypto investments as the crypto market fluctuates. A balanced and properly managed portfolio has fewer risks and higher odds of investing in successful cryptocurrencies.
Cryptocurrency Stocks
If you are a stock trader or investor, you can invest in companies that are related to cryptocurrencies. Companies like MicroStrategy and Tesla own large amounts of crypto. There are other companies that mine Bitcoin, and there are cryptocurrency platforms and brokers as well. These stocks present great options for traders who want to diversify into cryptocurrencies without investing.
Crypto ETFs
Exchange-traded funds, or ETFs, are essentially funds that track indexes or assets. Many ETFs can be found for all kinds of assets. There are cryptocurrency ETFs that allow individuals to begin their crypto-investing journeys through this method as well. However, it is essential to remember that although crypto ETFs present great opportunities to invest and diversify into cryptocurrencies, they may have different returns than their target assets.
Investment Vehicles
Investors can diversify crypto holdings across various investment vehicles and account types to avoid the risks that undiversified portfolios may present. These include digital wallets, taxable brokerage accounts, decentralized financial products, and others. These account types and investment vehicles can facilitate the direct ownership of digital coins and digital assets while supporting multiple ways to invest in and hold digital assets.
There are many reasons to invest or diversify into cryptocurrency, whether to lower the price volatility or to learn more about the crypto economy and expand your knowledge about various investment opportunities. In addition to investing and diversifying into crypto, investors and traders must have a proper diversification strategy to ensure minimal risks and increase the potential for higher outcomes. To diversify into cryptocurrencies, it is important to identify the gaps that may be present in your portfolio, whether you have already invested in cryptocurrencies or not. The gaps may include a severe lack of certain kinds of investments and a dominance of certain kinds of investments. To adequately diversify, you must ensure a proper balance in your investments. You can sell investments that take up too much space in your portfolio and replace them with new ones to ensure a balanced and diversified portfolio.
Harvi Sadhra is the CEO of Revir Media. He has over 10 years of experience in digital media and has been featured in many of the largest media brands on topics related to finance, stocks, money, technology, and more.