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How To Build A Low-Risk Crypto Investment Portfolio

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Return on investment is only possible with a proper foundation.

Building a cryptocurrency investment portfolio is not just relegated to the rich. Have no doubt, you can invest a small amount and build a wonderful portfolio. Many rich individuals with significant funds have invested small amounts and then grew them gradually. In fact, they have really been doing this slowly for a long time. As you know, it takes some time to push through the cryptocurrency markets and become an expert.

Your earnest desire when building a cryptocurrency investment portfolio should be to build the one that will remain for a long time. It should produce the highest returns in a long-term basis. This necessitates having a long-term investment plan. Fortunately, having a long-term investment plan will help you spot different projects that offer cheap fees and cryptocurrencies that are not too risky.

Now, the cryptocurrency market has performed well in terms of return on investment (ROI) over the past year on multiple projects, despite the high speculative nature of the market. This means that if you had invested $100 USD in January this year, for instance, you could have earned $1000 USD by now. This is what we refer to as a long-term investment.

Long-term investment in the conventional stock market lasts for at least a year. Though, due to the fast movement of the cryptocurrency market, long-term cryptocurrency investment can begin to yield huge returns in a matter of months or within a year. Read on to find out how you can invest in cryptocurrency and build your portfolio with ease.

Benefits of Long-term Crypto Investment

Many investors and traders alike have enjoyed a lot of leverage from long-term investments because of the many advantages it has to offer. Here are the benefits you will reap as you get yourself locked into reliable, long-term crypto-investment.

  • Lower Trading Fees

You are bound to pay a lot of fees from exchanges for trading or buying cryptocurrencies from their platform. These trading fees will eventually trim profits by quite a bit. Nonetheless, with a long-term investment plan, all you have to do is to choose a few cryptocurrencies and wait for some time. You wouldn’t worry over trading fees because you don’t trade every day.

Therefore, the number of trading fees you will pay will reduce drastically. This is a long-term plan that most successful traders have applied over the years.

  • Lower Risk

A Long-term investment plan offers you the opportunity to dip in and out of the market at the right time. Also, you won’t worry yourself if you miss the days in which tangible profits were possible as your profits are not tied to only one cryptocurrency.

Indicators that Determine Long-term Viability of Cryptocurrencies

Here are the indicators you can use to measure the potential of the cryptocurrency you want to invest in.

1. Market Share

This is the amount of market capitalization that a particular cryptocurrency has. The higher the market share, the more dominant the cryptocurrency is. Bitcoin (BTC) has the largest market capitalization in the cryptocurrency space. Accordingly, including Bitcoin in your portfolio is very critical to your success in cryptocurrency investing based on its market capitalization.

2. Transaction Volume

An investor can determine whether a cryptocurrency is functional by checking its transaction volume. The transaction volume can increase per day as long as the increasing trend continues to show the long-term viability of holding the cryptocurrency in your portfolio.

3. Utility Value

The utility value of a cryptocurrency entails determining whether the cryptocurrency will stay around for some years from now. It is equally important to know whether it is useful in today’s market. The most useful cryptocurrencies will receive the widest adoption.

For instance, some cryptocurrencies have a utility value that depends on allowing developers to create decentralized applications (dApps) on its blockchain. This will increase its utility value.  As a result, such cryptocurrency will remain a viable option to include in your portfolio. Ethereum is a suitable example in this regard.

4. Technology Compliant

Technological development is a key feature in determining how cryptocurrency will fare in the market. So, the cryptocurrency might fail if the technology upon which it is really built is not fit or useful for that purpose.

5. Portfolio Construction

What percentage of each cryptocurrency should you hold in your portfolio? This is directly connected to your risk level or your tolerance towards taking the risk.

Taking the conventional investment markets as an example, an investment portfolio can take 50% equity and 50% bond, on a neutral risk tolerance level. When you combine this together, the outcome is a balanced portfolio – not too much risk, not too safe to keep you away from potential profit.

Taking this concept into the cryptocurrency world, Bitcoin is less risky than any unknown altcoin. You can construct your portfolio in such a way that Bitcoin will be the base cryptocurrency taking 50% of the investment, while others take up the remaining 50%. With this arrangement, your long-term portfolio will be actually balanced to curtail your risk level and stabilize your safety for a long period of time.

You may ask me: what other cryptocurrencies should take 50% of your investment portfolio? Simply put, make your own intensive research to find those cryptocurrencies.

6. Neutralizing Volatility

Since the cryptocurrency market is highly speculative and volatile, having a volatile-proof portfolio to withstand that volatility is the best. Your portfolio should be holding Bitcoin for a long-term to stay at a low-risk level. Besides, Bitcoin is (one of) the oldest cryptocurrency and the primary decentralized cryptocurrency. Bitcoin has the biggest press exposure. Equally, it has the best potential of receiving investments from new traders.

The summary of portfolio construction is this: you should invest 50% of your crypto investment in Bitcoin and the other 50% on at least 5 to 10 other altcoins spreading the investment sum evenly.

Wrapping Up

This is the right time to invest in cryptocurrencies. With all downsides accounted for, it is still a way of delivering better returns than the conventional stock market. However, it is important to have a long-term plan to achieve these returns. Failure to do so could amount to a monumental loss of funds. While you put a long-term plan in place, it is also good to vary that plan to suit your preference, and above else, exercise patience.

Risk Disclosure

This article should not be taken as, and is not intended to provide, investment advice. Users are ultimately responsible for the investment decisions he/she/it makes based on this information. It is your responsibility to review, analyze and verify any content/information before relying on them. Trading is a highly risky activity. Do consult your financial adviser before making any decision. Please conduct your thorough research before investing in any cryptocurrency and read our full disclaimer.

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