The Key Roles Asset Diversification plays in the World of Cryptocurrencies
It is more common today to find crypto-asset holders who have little or no idea on how to diversify their portfolios. Diversification is very important if you are to develop a winning cryptocurrency portfolio. Over the years many people have failed as crypto traders because they do not have a real strategy. For something as highly volatile as cryptocurrencies, investors shouldn't be without a good diversification plan.
How to best to diversify your cryptocurrency portfolio
For the sake of precision, in this article, we'll be talking about a few distinct approaches to diversifying your cryptocurrency portfolio and grow your assets. Basically, we'll be covering the following methods;
- Proper allocation of your assets
- Taking advantage of Proof of Stake protocol and Master nodes
- Investing in cryptocurrency banks to earn interest
- Trading cryptocurrencies on Exchanges
In order to enhance diversification, it is important to invest in a vast variety of cryptocurrency assets. There is an old saying that is quite popular “any man who plans to succeed does not put all his eggs in one basket”. One of the biggest issues in asset allocation is knowing to choose which cryptocurrencies to invest in and how to spread your investment across each one of them. Some of the questions that pop up when we are faced with these issues are, "Which crypto-assets should I invest in?", "where should I put more of my money in A or B"?. In as much as this can turn out to be a huge setback, it is more advisable to invest a larger ratio of your assets into large-capital cryptocurrencies like Bitcoin and Ethereum because they are more stable. These assets tend to retain value better when the market dips. Small-town coins are less stable, but they are also great for growth. Your portfolio can receive a huge boost if you pick the right coin, but it could also receive a big blow if you make a bad choice. You can diversify your portfolio by spreading your risk across multiple small-town and limiting your exposure to them.
Taking advantage of proof of stake and masternodes
In the early days of blockchain advancement, most cryptocurrencies like Bitcoin and Ethereum made use of the Proof of Work protocol (PoW), but recently, newer cryptocurrencies are beginning to adopt the Proof of Stake (PoS) protocol. This is because PoS doesn't require specialized hardware as PoW does and it uses a relatively lower amount of electricity. It is much easier to get started with PoS because all you need is a significant number of coins to begin staking. You only need to acquire the minimum amount of coins and run a wallet capable of staking. After a specified period of time, you'll start generating rewards that will be deposited into your wallet.
Masternodes, on the other hand, can provide better rewards than staking, but they require more resources and time. You'll likely need to purchase a VPS to host the node and setting them up is not always straightforward because it might require some technical know-how.
It is pretty easy to get started with staking and it's much easier to make sure you'll generate a profit than with hardware mining.
Investing in cryptocurrency banks to earn interest
It is no longer new knowledge that there are cryptocurrency banks out there. Although they may not have physical locations like traditional banks, they still offer pretty much the same services a traditional bank would offer.
Cryptocurrency banks are relatively new establishments that will pay you a regular amount of interest for holding your assets with them. It is basically a virtual bank for virtual money. One of the advantages of having crypto banks as part of your diversification strategy is that it's totally hands-off. The bank does almost everything for you, and then you simply receive your interest in your account.
For those who want to grow their crypto assets without having to deal with the stress of day to day trading on Exchanges, crypto banks are the best option. Crypto banking is one of the few ways to earn cryptocurrencies passively. It works pretty much the same way as HODLing, but you'll get interested in it.
Trading cryptocurrencies on exchanges
The first thing that comes to mind when people talk about cryptocurrency investing is usually trading on Exchanges (although it is the last on my list). Many people do not have what it takes to trade cryptocurrencies on Exchanges. It is very easy to let sentiments get in the way and this is where you need an iron will to keep you from making costly errors like panic selling or even panic buying into an unwise investment.
Every crypto trader also needs to be aware of the troubles lurking in the trading market, like the many unscrupulous pump and dump groups looking to take your money through misrepresentation and deceit.
If you develop good trading skills and apply smart money growing strategies, you may find exchange trading can be interesting. The constant ups and downs of the cryptocurrency market provide many opportunity windows to make profit. One way to take advantage of the volatility of cryptocurrency is to trade on more than one exchange.
Your Asset is your responsibility
Above all, it is important to know that you are the sole custodian of your own funds when it comes to crypto investments this means you are responsible for the safety of your funds. You shouldn't keep all your assets in one wallet to prevent theft and cyber hacks, and extra care should be made to carefully choose which exchanges and cryptocurrency platforms to trust with your money.
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