Cryptocurrencies such as Bitcoin are undoubtedly profitable investment instruments, historically outperforming other asset classes. The crypto revolution has seen many investors shift focus to digital currencies, with many increasingly adopting Bitcoin into their portfolios. The primary benefit of diversifying an investment portfolio is preventing major financial burnout if one or more projects experience a downturn.
Every investor’s goal is to reduce risks and maximize profits at every step of the way. And, diversifying your portfolio can be one of the best ways to achieve that goal, allowing you to maximize your returns even when some of the portfolio items perform poorly. However, Bitcoin and other cryptocurrencies are relatively new and highly volatile asset classes.
As such, a Bitcoin portfolio diversification might seem a bit more complicated than traditional investments such as stocks. Nevertheless, the following are proven strategies for diversifying your Bitcoin portfolio.
Diversify by Industry
Bitcoin adoption is currently gaining traction in almost all economic sectors, including finance, e-commerce, manufacturing, real estate, retail, travel, and healthcare. However, those industries have different growth prospects that could impact your investments in various ways. Experts recommend that you do a little research to identify the industries with higher growth and competitive prospects in which to invest. Diversifying your Bitcoin investments into high-growth and globally competitive sectors like finance and healthcare could be more profitable.
Institutional investors have applied time diversification on various instances to cushion their investments from financial ruin. The same can apply to Bitcoin investments. The strategy mainly requires you to time the market and buy Bitcoin at the right time. It is impossible to eliminate market risks when investing, but you can enhance your portfolio’s value by selecting when and where to invest.
Time diversification is usually an interval-based investment approach whereby you set aside a specific amount of money to invest in the chosen tokens at particular times. It is always a great idea to invest in Bitcoin when its prices are low. That would enable you to make significant profits when the prices soar. Platforms such as the Bitcoin System can help you keep a watchful eye over the crypto market, with constant updates about Bitcoin’s price movements.
Diversify by Geography
Experts also recommend you invest in cryptocurrency projects worldwide to reduce the exposure to risks if some fail to deliver results. Depending on your risk tolerance and asset preferences, you can mix and match Bitcoin-friendly projects from the U.S, Europe, Asia, and Africa.
Also, remember not to put all your funds on crypto projects in the same country or region. Instead, do a little research to determine the performance of blockchain projects in various parts of the globe. Spreading your Bitcoin investments across different countries or regions will cushion them from regulatory uncertainties and offer you an alternative to balance your portfolio even in untenable market conditions.
The analytical approach is complex and depends on your investment goals and needs. It requires strong analytical skills and precise tools. You can diversify depending on the number of funds you have, your risk tolerance, and crypto market swings. Make sure you allocate the majority of the funds to relatively stable Bitcoin projects, with the remainder going to moderately risky ventures.
The idea of Bitcoin portfolio diversification is to invest a varying percentage of your capital in multiple projects so that a decline in price does not significantly hinder your profit margins. The strategies discussed above are proven effective to deliver the best possible returns even when some of your portfolio items fail to materialize.