Investing in cryptocurrencies is not just about looking for “quick profits,” but also about creating a balanced portfolio that will work for the long term. Every investor has their approach, based on personal experience, knowledge, and analysis. In this guide, we will explain how to build a diversified portfolio that can help minimize risks and increase the chances of profitability in the long run.
For convenience, let’s assume an initial amount of $5000 that you’re willing to invest in cryptocurrencies. The planned investment period is 3 years, meaning $140 per month, which will total $5000 over 36 months. The main rule is: invest only what you are prepared to lose, as cryptocurrencies are high-risk assets.
1. Core Asset: Bitcoin (50% of capital)
When building a diversified crypto portfolio, it’s important to consider the major cryptocurrencies that are at the peak of popularity and have high liquidity. Bitcoin (BTC) is such an asset. It has long established itself as the primary and most stable crypto asset. Betting on Bitcoin is like betting on stability, despite the high volatility that the crypto market sometimes demonstrates.
We recommend allocating 50% of the total capital to purchasing BTC. This will be the core of your portfolio, which is likely to provide growth in the long run. Bitcoin has already proven its ability to recover after downturns, and in the future, it will continue to be a core asset for investors.
2. Ethereum (ETH): 20% of Capital
Ethereum (ETH) is the second-largest asset by market capitalization after Bitcoin and an essential part of the crypto ecosystem, thanks to its blockchain platform, which supports numerous applications and decentralized finance (DeFi). ETH also plays a key role in the NFT space and smart contracts. Although the price of Ethereum is unlikely to return to $20,000 in the coming years, it remains a stable and promising asset worth considering in your portfolio.
Allocate 20% of capital to ETH. This will provide additional diversification, giving you access to a large number of innovative projects and applications built on Ethereum. Even if the price of ETH doesn’t show explosive growth, its long-term role in the crypto industry should ensure steady growth.
3. Second and Third-Tier Cryptos: 20%-25% of Capital
Now we have 20%-25% of the capital left, or about $1250-$1500, which can be invested in second and third-tier cryptocurrencies. These are not the most popular, but promising projects that could show significant growth in the future.
For example, you can include cryptocurrencies like Polkadot (DOT), Solana (SOL), and others. Additionally, it’s worth considering projects that offer solutions for specific industries, such as cryptos for decentralized applications (dApps), privacy solutions, or smart contract creation.
Important: Don’t invest the entire remaining amount in one cryptocurrency. Spread it across several assets to reduce risk. While second and third-tier cryptos can be high-risk, they have the potential to offer high returns if their technologies are successfully implemented.
4. Meme Coins and Other High-Risk Assets: 5%-10% of Capital
You can invest 5%-10% of your capital in meme coins and other high-risk assets. Meme coins (such as Dogecoin, Shiba Inu) often gain popularity through internet hype and memes, but not everyone makes money from them. Investments in these assets are highly risky and do not guarantee profits.
However, allocating a portion of your capital to such assets for diversification is an option. It’s important to understand that these investments can either rise sharply or lose value quickly.
5. Benefits of a Diversified Approach
By creating a diversified crypto portfolio, you balance assets with high and low risks. This approach helps reduce the likelihood of significant losses and increases the chances of profit in the long run. Since you plan to invest over a 3-year period, you’ll have the opportunity to purchase assets at different stages of the market, which will give you better average purchase prices than most other market participants.
When Bitcoin (BTC) finds its bottom (as it has done in the past), its growth, as demonstrated by history, can reach 150% in a relatively short period. Thus, even if other assets show lower growth, BTC in your portfolio can significantly offset any potential losses.
Conclusion
Diversification is the key to successful cryptocurrency investing. The approach of allocating the bulk of your capital to more stable and liquid assets while spreading the remainder across riskier, yet promising, cryptocurrencies helps reduce risks and increase the chances of profit. Remember that cryptocurrencies are high-risk assets, and always invest only what you are willing to lose.
