Published in cooperation between the Bazoom Group and San Jose Inside
A crypto investor seeking to reduce financial risk would not go wrong with diversification, as it is listed among the basic principles of investing that can aid in mitigating portfolio risk. When the talk is about building a digital asset portfolio in this volatile market, risk management becomes important if you wish to protect your bottom line.
Recently, the crypto landscape has witnessed the emergence of altcoins (alternative cryptocurrencies), some of which have gained significant market share and popularity in the digital currency world. For those who wish to take a rest from Bitcoin, altcoins are worth checking out. According to research, these alternative currencies are backed by different ideas in terms of the underlying technology behind each, the intended uses/community of users, the team behind the currency and its future development. Thus, each coin has a different use and they would benefit investors who chose them as their portfolio diversification tools but you must know how to implement them.
The Best Way To Diversify Your Crypto Portfolio with Altcoins
Ensure that the Altcoins You Procure have Different Use Cases
The thousands of altcoins in the crypto landscape today sport different financial performances, varying values and use cases. Considering the functions and use cases of different altcoins before investing in them it helps in diversifying your crypto portfolio.
A good instance is Ethereum, which is second to only Bitcoin in the crypto network. Ether leverages smart contracts to allow the creation of decentralized and distributed apps on its network.
Stablecoin is a second option. Its market value is attached to a reference asset such as a trade exchange commodity or fiat. USD Coin (USDC) and Tether (USDT) are stablecoins that have remained stable over the years and are great at lessening the inherent volatility of the digital currency market.
Invest In Diverse Altcoins Blockchains
Blockchain is the underlying technology for all cryptocurrencies. They abound in the crypto market, where they can be accessed by users for investment.
With the Ethereum blockchain network, users can develop dApps on its platform. They can also implement the smart contract—an agreement that doesn’t call for third-party involvement.
Investors who choose to diversify their portfolio through EOS blockchain will have access to smart contracts, cloud storage and dApps. One special feature of the EOS blockchain network is that it permits users to process millions of transactions in just one second, as well as App updates and upgrades.
Diversifying a crypto portfolio with Cardano is also a great option as the competitive blockchain provides enhanced network security, efficiency and scalability. The Cardano blockchain also functions like Ethereum by allowing the creation of decentralized and distributed apps on its platform.
Compared to other blockchains, the Solana blockchain has some distinguishing features. For one, it processes transactions with supersonic speed and charges very low transaction fees.
Adopt Diverse Altcoins Sectors
Altcoins in the digital asset market are grouped under different types, including BAT (Basic Attention Token), GLM (Golem Token) and FIL (Filecoin). These are apt instances of utility tokens.
The altcoin sector allows users to access precise platforms’ products. Another coin sector known as NFTs (non-fungible tokens) permits talented artists to display their art for sale on their platform. Transactions are also consummated there when they find a suitable buyer.
Other effective altcoin sectors include Platform tokens, stablecoin, DeFi coins, security tokens, meme coins, play-to-earn, governance tokens and more. Users are free to invest as well as explore different coin sectors of their choice according to what fulfills their requirement.
Diversify Your Crypto Portfolio Based On Your Risk Level
Before you decide to go ahead and diversify your cryptocurrency portfolio, you must first consider your capacity when it comes to handling risks in this volatile market. What level of risk will be too much for you and what can you comfortably handle? Recommendations are that investors start their portfolio diversification project by putting their funds in stablecoins that portend less risk.
Such investors will find much to like in stablecoins because their value is not prone to incessant fluctuations. Thus they are less risky. Another great investment option is Ethereum—a currency that has lasted through multiple bear markets.
Leverage Market Capitalization to Diversify Your Portfolio
Altcoins come in multiple sectors and types. Each of them has a varying market cap that investors can consider taking into their crypto portfolio. The altcoins that are considered to be more stable are those sporting larger market caps, which are believed to have solid fundaments.
Instances of coins with the highest market cap are Ethereum, BNB and Tether. However, it is the altcoins with lesser market capitalization that have stronger growth potential—but the degree of risk is way higher. Matrix, CantOHM and XENO Governance are instances of altcoins with the lowest market cap.
