By As the old adage goes, never put all your eggs in one basket. In other words, it is CoinBeat’s opinion and recommendation to diversify your cryptocurrency portfolio over various coins rather than have it all invested in just one. The cryptocurrency sector is in its infancy and while certain coins may look positioned to outshine the others, anything could happen to affect that eventuality.
For example, if Bitcoin is unable to implement lightning into their network soon, we may see competitor coins rise to actually dethrone it. Another example is with IOTA and ETH: while Ethereum is the current leader in platform coins, IOTA and its hashgraph technology looks very promising and may one day resolve many of the scaling issues and become blockchain 2.0. In the event that this actually comes to pass, if you had only invested in ETH, you will likely lose out on the IOTA success.
The Future Top Coin May Not Be Bitcoin
According to the World Economics Forum, cryptocurrency market capitalization will grow an estimated 2000% – 4000% over the next 5 years, reaching a market cap of around $10 trillion USD. This means that investors have a huge 20x to 40x profit potential if they were to invest in the right coins. What most investors fail to understand is that no one can predict which of these coins will be the ones that make up the majority or biggest percentages of that estimated growth. Many people assume it will be Bitcoin, Ethereum or Litecoin. However, as the sector is growing and new improvements and technologies are being released, it is very likely one of these newer coins or even one that hasn’t come to market yet will be the dominant sector player. So, while Bitcoin may be the dominant cryptocurrency today, there is no guarantee that it will remain so for the long term.
How to Guarantee You’re Investing in the Right Coin
Here at CoinBeat, we suggest using an index-based strategy, where you invest in a basket of coins that ups your chances of having that coin or coins on the portfolio when the surge happens. An index strategy works primarily by rebalancing your portfolio, ensuring you are invested in a multitude of coins and products. Through much third-party software, an investor doesn’t need to manually rebalance their portfolio when one coin becomes too dominant, as these companies now offer solutions where AI bots do that for you.
Another great approach to ensure profits are more consistent is to actively trade and take advantage of the many dips and surges the sector provides. On a given day, cryptocurrencies like Bitcoin rise and fall with extreme volatility in comparison to other sectors. It is not uncommon for a cryptocurrency to gain 10% and fall 10% in a 24h period. With this type of volatility, an active trader could make substantial profits by selling at the tops, and then buy back in at the bottom of these swings.
For example, if you had 1 BTC purchased at $10,000 and the price was to surge to $11,000, selling the 1 BTC at $11,000 and rebuying it if the price retracted back to $10,000 would make the investors position grow to 1.1 BTC. This active trading approach is very difficult to time and, without a professional level understanding of the cryptocurrency markets, should not be attempted by an amateur trader.
Trading like a Professional
Trading professionally is a skill that takes years to develop and requires a deep understanding of the markets and intuition that comes from years of active trading. It is very difficult to know the correct times to buy and sell. Most investors who attempt this type of high-frequency trading approach end up missing the tops and bottoms and losing capital, rather than making profits. Unfortunately, and until recently, beyond trying their luck, there were little options for investors interested in trading. That is changing as conventional money managers look to make professional level trading available to the masses.
Through newly released crypto-investment platforms, cryptocurrency investors can connect with professional cryptocurrency traders and mimic or piggyback on their positions, portfolios, and trading strategies. Unlike services that require you to deposit your coins, many never require your withdrawal permissions and can integrate into your existing exchange accounts on GDAX (Coinbase), Binance, or other major exchanges using the API settings of those exchanges. Using these newer services, you never lose control of your funds and never have to worry about non-transparency which is often rampant in the sector.
Getting back to the question, we would advise you to not put all your eggs in any one basket no matter how golden the opportunity would seem. Either use an index strategy or diversify your portfolio to ensure you are not overexposed to any one asset. You can do this on your own, directly hire a professional, or, if you don’t have the time or knowledge of the sector to self-trade actively, you can try using a professional service.
Stay Up to Date
Knowledge is one of the main keys to ensuring success and returns. CoinBeat’s daily and weekly market recaps are a great way to stay on top of the news from everywhere in the cryptocurrency sector ensuring you never miss an opportunity or get caught without the relevant information to make informed trades. Follow our Facebook, Twitter and Telegram channels to stay up to date with the latest news. If you’re a writer, feel free to get in touch and send us your submissions now
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