How to Invest in Crypto Currencies: Allocation and Diversification

CoinExpert

CoinExpert

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Investing in crypto currencies is a quite risky business, similarly to investing in a fast-growing startup at it's early stage. This type of investment is common among angel investors, individuals with experience in the industry and extra cash. If you have never been involved in such kind of business, investing in crypto currency might be a challenging task.

However, if you do decide to invest in crypto, here are some tips:
  • Invest money you can afford to lose;
  • Don’t borrow money for investing;
  • Do not invest in projects that promise '100% profit’ — this is likely to be a scam;
  • Don’t invest if you need to withdraw money in less than 12 month. It is impossible to predict the market behavior.
  • If you are not a professional, do not engage in short-term speculation — you will lose money.
  • If you are not an experienced investor, don't day-trade — you will lose money.

Portfolio Allocation

If you decide to invest, you need to define which part of your portfolio will be invested in crypto. The answer to this question can be chosen depending on the degree of your acquaintance with the blocking technologies:

allocation.jpg


You have a little understanding of blockchain technologies: 1–5%
You are an enthusiast of blockchain technologies: 5–10%
You have a proven track record of a successful blockchain investor: >10%

If you have a healthy financial situation, investing 1% of the funds will not create problems, but if the new technology is spread, you will receive a profit. Investing in cryptocurrencies should be considered as a part of a long-term investment plan, and the more you understand blockchain technologies, the more of your funds you can afford to invest.

Diversification

Just as on the stock market, diversification is important in crypto trading. Bear in mind that all blockchain projects are early stage startups and many of them inevitably go bankrupt. Diversification allows to reduce the investment risks as well as to get higher investment returns by depositing in more projects.

How to Diversify Your Crypto Portfolio

There are several ways to achieve diversification in crypto:
  1. Do it yourself;
  2. Invest in a Hedge Fund;
  3. Use a passive-investing service.
Let's study these options, assuming that you want to buy TOP-10 coins by market cap.

Do it yourself
  • Open an account and pass the verification process on a crypto exchange that accepts payments with credit card or bank accounts.
  • Buy bitcoin. Usually, exchanges sell only a few crypto currencies, therefore you will need additional steps to achieve proper diversification;
  • Open an account on another exchange — less popular, but providing access to many more coins;
  • Transfer Bitcoins from the first exchange to the second one;
  • On the second exchange buy other coins for Bitcoins;
  • Secure the coins in hardware wallet.
Investing via Hedge-Fund Operators
  • Chose a hedge fund;
  • Meet the investment manager;
  • Read the rules and prospectus;
  • Sign up an investment agreement.
Use a passive-investing service

  • Make an application;
  • Sign up an investment agreement;
  • Choose one of the offered crypto baskets;
  • Monitor the profitability.
 
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