Once you get started trading it’s easy to get stuck on just trading with a couple of the bigger more well-known coins such as Bitcoin, Litecoin, Dash, and others. But eventually, most people will begin to wonder and start spreading out their portfolio to include some newer tokens or even some older tokens that aren’t as mainstream as the top ten are. A great example of such a token is NANO, it is an incredible token that can be sent anywhere and is received nearly instantly with zero costs. This is such a great example because the technology behind NANO and the crypto itself have been around for far longer than most of the current coins on the market. When you begin to venture into some of these lesser-known projects you must remember that any involvement with trading these inherently carries higher risk while simultaneously having the possibility for higher rewards as well.
Diversification:
As the trek into lesser-known projects opens doors for many more opportunities, not only with trading but also with the unique aspects that different projects offer. When trying to diversify a portfolio the first thing that should happen is a portion of the overall capital should remain in USD for any dips or massive crashes. Typically the amount of USD should be somewhere between 20-40% of your total portfolio value. Furthermore, the next two should hold anywhere from 20-30% of your portfolio between BTC and ETH. The reason for keeping a portion in those two top coins is because there are an extremely large amount of coins that you can trade against both ETH and BTC. While trading with smaller-cap tokens my personal strategy to diversify while keeping these tokens is to trade them against either ETH or BTC until I both profit in gwei or sats while also keeping a bag of “risk-free” tokens. The reason I call them risk-free is because I have already made back the money I used initially plus some profits and so the small bag I keep of pure profits if I were to sell it. While this tends to leave you with bags of a lot of different coins it also gives you much higher chances of one of the small-cap coins going parabolic or being an excellent project that you will want to keep the coins to use with.
Purpose of Diversifying:
I wouldn’t go through this effort to explain why diversification is important without actually giving a detailed reason. With that being said let us say that there are two portfolios we are going to compare where they both are worth the same amount in USD. Portfolio 1 contains a very small and simple diversified portfolio where it holds 25% USD 50% BTC 15% ETH and 10% in DASH; While portfolio 2 has 35% USD 15% BTC 15% ETH and the other 35% is spread between 4-8 microcap tokens. If we compare these two and know they both have the same value we can see that portfolio 2 is holding a larger USD reserve while holding less in BTC and more in small-cap coins. Strictly based on the USD reserves we can assume that in the event of a full retrace Portfolio 2 will both have a larger USD amount as well as have a bigger opportunity to purchase more tokens for less than portfolio 1. While it’s a little early to discuss this it is worth mentioning that the smaller cap coins also don’t tend to follow the trends of the larger tokens (mainly BTC and ETH).
Purpose of Reserves:
If there is a single thing that I cannot stress enough for anyone interested in trading cryptocurrency with their own capital, it is to always hold a decent portion of your portfolio in USD reserve for the chances of a large retrace or even big dips. The market regularly will correct a portion of the amount it has increased, sometimes will correct far more than that as was seen during the crash in March which saw a drop from the $10,000 range down into the $3,000 range. This point in time could not be more perfect to utilize the extra capital that was kept in reserves.
Thank you for taking the time to read my article. I hope this has helped give some information and encouraged people to do some more research! Any comments are greatly appreciated!
~Trever Russell
DISCLAIMER:
I am not a professional financial advisor, all information within this article is personal opinion based on my experiences, nothing in this article is meant to serve as financial advice and shall not be construed as financial advice in any form. The sharing of my personal experiences is for entertainment purposes and I nor cryptowriter can be held liable for any information which has been misconstrued and wrongfully utilized as financial advice.
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