In this article, we will explore what a healthy and sustainable crypto folio can look like. We also discuss a few key considerations that can help you determine if your crypto portfolio is on track to meet your financial goals.
Before getting started, it’s important to understand why you want to invest in cryptocurrency and what you expect from such an investment.
Are your finances stable? Do you have enough savings that could be put at risk by investing in crypto? If the answer to either of these questions is no, then perhaps now isn’t the right time for this type of investment. You may also want to consider diversifying into other asset classes like stocks, bonds, or real estate.
It’s also essential that any investment strategy fits into your overall financial plans – something many people fail to consider when they first start investing.
Diversification is about not putting all your eggs in one basket. The right mix of coins depends on your personal preferences, but there are some general guidelines you can keep in mind:
What are the different types of crypto coins? In general, we can group cryptocurrencies into two categories, utility tokens, and security tokens.
Utility tokens have become popular lately as they offer a set of specific functionalities rather than being backed by any sort of physical assets like gold or oil. Their goal is to integrate themselves within an existing platform.
It can say Ethereum’s smart contracts or even the Internet itself through blockchain networks like IOTA. It aims to make payments more efficient by eliminating transaction fees. However, utility tokens aren’t guaranteed to appreciate over time because they’re often tied only loosely to their platforms’ performance.
If people stop using them then their value will fall with it. On the other hand, security tokens represent equity ownership in a company or piece of property (e.g., real estate). They’re easier for regulators and investors alike because they allow buyers access to similar rights.
Diversifying your crypto portfolio means owning different types: utility versus security. How Can You Diversify Your Crypto Portfolio?
There are many ways that you can diversify your cryptocurrency portfolio across multiple coins/tokens! One method involves buying several different kinds at once while other methods involve choosing specific ones based on where they excel relative to others.
Once you have an idea of how to diversify, you can check the ways how to buy cryptocurrencies. You should note that you can buy crypto with a credit card, debit card, or any other mode of payment.
Liquidity is a measure of how easily you can sell your cryptocurrency without any losses. For example, if you are an investor with $10 million and decide to invest in cryptocurrencies, then liquidity is not as important to you. If the market crashes and your investment decreases by 5%, then it won’t impact your portfolio too much.
On the other hand, if I have only $100,000 and I want to invest in cryptocurrencies then liquidity becomes very important because even if there is only a 5% drop in value, my investment will decrease by 50%.
Liquidity becomes more important when investing in smaller amounts of money because there isn’t much room for error when money is limited (unlike larger investors).
It’s important to remember that liquidity doesn’t necessarily mean low volatility or high volatility – it can be both! For example, Bitcoin has low daily trading volumes compared with most other currencies.
Therefore trades less frequently than most other currencies which mean there isn’t always enough volume available on exchanges when trying to buy/sell large amounts of bitcoin at one time. This lack of trading volume makes Bitcoin less liquid than some other currencies such as Ethereum or Litecoin.
They have more frequent trading volumes which makes them easier to sell when needed quickly without incurring large losses due to price fluctuations during periods where demand rises unexpectedly fast causing sudden spikes up followed by drops caused by panic selling when sellers panic over rising prices instead of being able.
There is no need to worry about annual expenses. In the long term, you can easily earn more than your annual expenses. Annual expenses are small and usually below 1% of your portfolio value.
Fiat currencies like USD or EUR also have similar low annual fees (1-2%) for holding them in a bank account, but the crypto market offers much higher returns on investment in comparison.
The platform you use matters
You’ve heard it before: the crypto world is changing fast.
For example, there are different types of cryptocurrency exchanges and it can be hard to keep track of them all. However, some things stay constant – and perhaps one of the best examples is that trading on exchange costs money.
Depending on which platform you use for your trades, this cost will vary widely.
- Transaction costs can eat into your profits.
- Transaction costs may be avoidable.
- Example of a transaction cost: If you were to buy $100 worth of Bitcoin with your credit card, and then sell it two hours later at a loss with the same credit card, you would be charged an additional 3% fee by your bank or card issuer.
Watch out when investing in crypto
Crypto is not a get-rich-quick scheme. It can be tempting to invest in crypto because of its relatively high returns, but as with any investment, it’s important to consider the potential risks.
Is there enough liquidity on the market? If you’re trying to sell your coins, will there be buyers at that time? How much will you pay per transaction (such as buying or selling)? Do these costs vary depending on which exchange platform you use?
Does your platform charge a fee each time you make a transaction or withdrawal from your account? Are those fees based on volume or the total value of transactions made by all users across all platforms over a certain period – monthly trading volume? How do these fit with how much money comes into play overall?
These will help you quantify liquidity risk, transaction costs, and Platform fees.
John Waynedid his degree in psychology at the University of Hertfordshire. He is interested in mental health, wellness, and lifestyle.