How to Build a Cryptocurrency Portfolio in 2022?

Ten years ago, Bitcoin was nothing but an experimental technology that promised to revolutionize the financial system. It was not considered as an investment class but simply as a new way to make payments. But now, you often meet individuals who regret not investing or mining bitcoins in its early days. And rightfully so.

In 2022, the global cryptocurrency market has become a gigantic USD 2 trillion industry that is growing at an exciting rate. The industry is not only disrupting the legacy currency and financial systems but has also given momentum to newer industries like DeFi, and, recently to the NFT marketplace. All this has pushed cryptocurrencies to a zealously pursued investment alternative.

However, before you buy cryptocurrency in India, it is crucial to understand that investing in an unregulated and volatile market like cryptocurrencies holds substantial risks. This makes it critical to trade with caution since high profits are always associated with increased risks. But, there’s nothing to worry about. Here are some tips that can help a beginner to manage and build a profitable portfolio.

#1 Diversify your portfolio

Portfolio diversification is one of the most prominent risk management techniques available.  You should never go all in. And why so? In an unfortunate event of a market crash or a crash of a particular genre of coins or rug pull of a specific token, you might be able to save your portfolio if you have not bet all your life savings into one crypto asset or a particular class of cryptos.

Moreover, short-term crypto-asset market movements (> 3 months) are generally based on certain waves, which is usually the hot topic of that bull run, for example, the Dogecoin jump and NFT craze. So diversifying means tapping into both safer, riskier, and such wavicle coins. Here’s where you can use various crypto classes to your advantage.

Classification of cryptocurrencies: an investor’s point of view

Every investor must make sure that they have at least one of the below categories in their portfolio and adjust their portfolio’s risk to reward ratio accordingly. The list includes the most popular cryptocurrencies as well.

Asset class cryptocurrencies

These are legacy cryptocurrencies that are early forks of BTC and have been long used as a medium of transaction. From an investor’s point of view, the success of these cryptos resulted in the birth of the crypto industry. These top cryptocurrencies are relatively low risk and offer medium rewards during a crypto bull run. For example:

Bitcoin (BTC)Litecoin (LTC)Bitcoin Cash

Infrastructure class cryptocurrencies

These coins are usually natives to blockchain ecosystems. Therefore, the demand and volumes of these coins increase according to upcoming events, institution collaboration, or adoption. Some of the coins in the top cryptocurrency list fall under this category. For example:

Ethereum (ETH)Cardano (ADA)EOS (EOS)

Service class cryptocurrencies

These cryptocurrencies are generally native to companies that are aiming to solve a particular problem in the crypto space or give out special services. The long-term price actions of such coins are dependent on the quality of technology, adoption(retail or institution), and generated revenue. These coins are usually the most profitable, but they come under the umbrella of the riskiest crypto assets.

Uniswap (UNI)MATIC

An investor needs to accumulate all these three types of crypto-asset classes for a profitable and, importantly, safe portfolio.

#2 Do not just scalp

Scalping might give an investor quick profits and is an important element of earning with cryptocurrencies. It also helps an investor to keep up with the crypto market. However, never commit more than 10% of your portfolio, especially if you scalp using margin or leverage. Never forget, scalping involves leveraging volatility to maximum advantage, and having more skin in the game can leave you vulnerable to volatility storms.

#3 Farm and stake

Investors who are looking to hold their cryptocurrencies for a long term can, instead of locking them in an exchange, stake or farm those tokens to earn an interest in a fixed period. And you can do this with most popular cryptocurrencies available in the market. These activities are the backbone of the DeFi sector.

#4 Portfolio rebalancing

This is one of the best strategies to ensure that you are in charge of your investments.  In portfolio rebalancing, an investor reorganizes their allocated portfolio from time to time. In a maturing market like crypto, strategically positioning yourself is very important if you want to make good profits. Portfolio rebalancing is the first step to a profitable career in cryptocurrencies. For example, Solana is predicted to rise by the end of the year. So you can position yourself to profit from this market shift when you buy cryptocurrency in India.

#5 DYOR (Do Your Own Research)

In 2022, it is essential to do your own research since there are many malicious elements in the market that might guide new investors in the wrong direction. The vast majority of coins don’t get adequate exposure, and there are many in their accumulation stage. Also, crypto scammers apparently took away a devastating US$14 billion in scams last year.

Some Frequently Asked Questions 

What is the difference between developing a crypto portfolio and a stock portfolio?

As mentioned above, cryptocurrencies are relatively more volatile. A 10% pullback is a dip in crypto, but it is a crash in the stock market. While building a crypto portfolio, one needs to factor in several elements like volatility, the price difference in various pairs and markets, global markets, global news, potential growth, etc. A perfect crypto portfolio needs to be strategized accordingly after weighing the most popular cryptocurrencies in the aforementioned parameters.

What are some of the common mistakes made by beginners while building a crypto portfolio?

Going all in

When buying cryptocurrencies in India, beginner investors usually invest all their capital in a particular crypto asset that could dearly cost an investor if things go south. But, even if it doesn’t, there is always an opportunity cost. There are always multiple opportunities to invest in different coins during a bull market which will have different return potentials and associated risks.

Overtrading

Even if you are a spot investor, trading can be beneficial. It can be used for anything – from hedging against the market or earning with the market trends. But overtrading is something a trader on a profit spree or back-to-back losses might do, which can be reckless.

As a crypto trader, recklessness might lead to dire consequences and hence should be avoided.

Not keeping some spare USDTs.

With crypto, there will always be a chance of another buying opportunity, probably lower than your entry points. Keeping some spare USDTs might help change the crash into an opportunity for profits. You never know which crypto assets make it to the top cryptocurrencies list next.

What are some common strategies that can benefit your portfolio?

Any kind of investment is all about approach, and therefore it is important to pre-plan and select the strategies fit for you.

Rupee Cost Averaging/Dollar Cost Averaging Diversifying Keeping some USDTs aside for going with the market trends

If you want to make a crypto portfolio in 2022, you also need a good exchange; check out WazirX,  which lets users buy crypto assets with INR at shockingly low transaction fees.

What Is Cryptocurrency?

A cryptocurrency is a digital currency secured by encryption, due to which chances of activities such as counterfeiting and double-spending taking place get close to impossible. Cryptocurrencies get created on blockchain technology ( a distributed ledger enforced by a distributed network of computers). Cryptocurrencies are unique in that they do not get issued by any central authority. The term “cryptocurrency” comes from the encryption techniques used to keep digital currencies and the network safe.

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