Introduction

Cryptocurrencies are a fundamentally new type of asset. Securities and resources have a physical state while cryptocurrencies do not, but the main difference is volatility. Growth of 10% per month is not unusual for many crypto-assets, even growth of 6-8% in a day. What is worth one Solana, that for 2023 has grown by more than 1000%! But the flip side of the coin is the drop in value. Minus 12% in a day is a common situation.  

The volatility of crypto-assets is the basis of high profit and high risk. There have been cases of falling prices by as much as 100%!

To make a profit, you need competent cryptocurrency portfolio management: to analyse the cryptocurrency market to assess the risks of cryptocurrency investing, etc. But what strategies for investing in cryptocurrencies work? That’s what our article will be about.

crypto value is falling.

The mood of the market changes often and from different reasons. Even from the social media of famous people who are not related to crypto. So the first thing to take care of is deversification if you decide to trade cryptocurrency.

Basics of portfolio management of cryptocurrencies

Portfolio management is buying, selling, exchanging and other actions with assets to increase profits or reduce possible losses. One of the elements is risk management (risk assessment).

Since cryptocurrency or cryptoasset is a new type of investment, it requires a new investment strategy. After all, volatility is not the only differences. For example, cryptoassets don’t need any licences. You can buy several different cryptocurrencies at once, even with a small investment, because they split perfectly. For example, the smallest piece of bitcoin at the peak of its price was worth 0.07 cents!

To manage the risk in cryptocurrencies, you need to evaluate the market, understand whether it is bullish or bearish. Bullish – crypto is rising in value, bearish – the value of crypto is falling.

The mood of the market changes often and for different reasons. Even from the social networks of famous people who are not related to crypto. So the first thing to take care of is deversification if you decide to trade cryptocurrency.

Diversification Strategies

Diversification is asset allocation or investing in multiple projects, startups, etc. When it comes to cryptocurrency, it’s not just buying a few coins, it’s more complicated and interesting here.

Optimising a crypto portfolio can inсlude methods such as:

Buying different coins is a type of deversification. It is used to avoid losing all assets when one coin falls. So the profit may be lower, but how many investors have already left crypto because they invested everything in one coin that collapsed!

Buying coins on different networks will make your cryptocurrency investment portfolio more flexible. After all, even different cryptoprojects support different networks, and transferring from one network to another may be difficult or impossible due to technical reasons. Also, each network has its pros and cons, but with a competent portfolio strategy in crypto you can use their advantages.

Opening accounts on different exchanges is necessary for the same security of crypto assets. After all, a crypto exchange, like any other business or enterprise, can close or go bankrupt, and will they return your cryptocurrency? – Possibly, but over how long a period of time? FTX exchange more than a year after closing down can’t do that. Or because of a mistake your wallet will be blocked, and to unblock it you need to pass a lot of checks.

And it’s not just crypto assets that are at risk here, it’s your personal data. Many exchanges collect customers’ personal data and hackers steal it. To avoid this? You need to use the services of an anonymous exchange, but many international exchanges are not such. However, our crypto exchange ‘AnyExchange’ cares not only about your funds, but also about your anonymity. All transactions are undocumented, fast and easy. In addition, the exchanger will verify all cryptocurrency before the sale, so you will not be blocked.

Such methods help to balance cryptocurrency investing. In addition, the rule: ‘The higher the risk, the greater the reward’ does not apply in investments.

Risk management and portfolio balancing

Risk management in cryptocurrency – It helps in balancing a cryptocurrency portfolio. It helps in keeping a tight control and understanding the possible trend. The main thing is that the risk should be justified, i.e. the profit should cover possible losses, even temporary. Which is very important if you prefer long-term crypto investing. In 2023, Bitcoin grew by 150% and Solana by 1000%! But despite the huge gains, the coins had drops (market correction) after each peak. 

Investment tip: Keep about 20% in coins that you consider stable. This will help you to compensate for unexpected losses or make an investment when the rest of the funds are already invested.

With proper risk management, you will be able to adjust your portfolio. Based on price changes, you can exchange coins from time to time and make up for recent losses.

But if you expect a rapid collapse and you need to withdraw everything into fiat, use our service ‘AnyExchange’. It makes money transfers even between countries. Thus, we will help you not just to withdraw fiat, but we can deliver you cash by courier, even if you are abroad.

Advanced investment strategies

In addition to balancing and diversifying cryptocurrencies, experienced investors use more sophisticated methods. The most popular ones are: 

Hedging and arbitrage come from stock exchanges, but are just as suitable for cryptocurrencies.  These methods are used to optimise a cryptocurrency portfolio.

Hedging is a method that reduces risks by reducing possible profits. Let’s say you have 3 coins and the price of each coin is $100. You are confident that it will rise. But you also have reason to think that it will fall. However, the probability that it will rise is higher. So you also decide to lock in a profit. Now the hedging begins:

You open 2 positions, one that you will sell most of the coins for above market price, and a smaller part for below market price.

If the price drops – sell the part that was with the price lower, and close the other position. This way you will lose, but less, especially if the price collapse made the asset cheaper than your price.

If the price has risen – sell the part with the price higher and close the other position. This way you will make a profit, but less than if you had sold the whole thing.

Arbitrage – reselling cryptocurrency and making money on the difference in the exchange rate: Buy a coin on one exchange, where the price of them and sell on another, where the price is higher. The main thing is that such a strategy of investing in cryptocurrencies brought profit, overlapping the commission. This way you can even earn more.

Hedging and arbitrage are fundamentally different things: Hedging is about protecting against losses when the price falls, while arbitrage is about making money.

Tools and Resources for Crypto Portfolio Management

In order to trade and earn income from short-term and long-term investment in cryptocurrencies, it is not necessary to have a PC, tablet, iPhone and the latest version of software. The main thing is to have a powerful and stable internet, which would allow you to be online for hours, and the computer – the release after 2016. Other devices are not necessary. While smartphones and iPhones will allow two-factor authentication, wallet apps are cold and hot, giving different options:

But if you decide to get into mining, you will have to buy a powerful computer after 2021, a bunch of graphics cards or rent power through exchanges (cloud mining).

Measuring success and evaluating performance

You can understand how successful Asset Management, or the profitability of a business, is by ROI (return on investment).

ROI is calculated using the following formula:

Amount at the end / Amount invested (VM)/ *100%.

VM is the fiat that you invested at the beginning. It is necessary to calculate this amount, not the price of the asset at the time of purchase, because to convert to crypto, you pay a commission, which can reach 6.5%! It is important to take into account, even if it is 0.1%.

If the indicator is 100% – it means that the investment has paid off, but there is no profit. However, with crypto, this is possible only for the first hour, then it is either 100%+ or less than 100%. Accordingly, either profit or loss.  

Due to the volatility of crypto, its price can change several times a day, start the day with a fall, and in the evening add to the price. To balance your cryptocurrency portfolio, you need to know the current exchange rate. Even a 1% drop can make a difference. You can see the current exchange rate of fiat and cryptocurrencies on our service in ‘AnyExchange’.

You can leverage crypto to increase your income! But we do not advise you to take loans in the beginning, because if you make a mistake and can’t buy liquidity – you will simply lose all crypto assets. In this case, even if your strategy works cooler than you wanted, but with a delay – you will suffer a loss.

The future of cryptocurrency portfolio management

Cryptocurrencies and their functionality are evolving. For example, in 2022-2023, artificial intelligence-based cryptocurrencies are being developed. Traders used to look for favourable trades themselves, now it uses robots. In this way, crypto is developing the IT sphere. 

Trading and arbitrage can bring a good income, for which you do not need to be a legal entity or have a licence. People see this as an opportunity for a new profession, and they create communities and even courses for training. For example, the company Cryptology sells such courses.

And the blockchain technology itself, on which all crypto works, wants to use and develop, because of its huge potential.

Conclusion 

Investing in cryptocurrency requires neither huge investments, nor years of experience, nor acquaintances in the circles of power. But you need a clear cryptocurrency investment strategy, which should be adhered to, and not mindlessly buy growing coins. It is also necessary to engage in risk management, to understand and assess the risk.

Even the most experienced and successful investors understand the risk of failure, so they have a strategic small fund for such a case. Also, if you are a beginner – you can team up with other investors and earn money on crypto-assets together.