There are over 22,000 cryptocurrencies in the world. It is not surprising that this variety of assets makes portfolio management very difficult. Moreover, many investors ignore this step at all thus preventing them from getting the maximum ROI.
A properly managed healthy crypto portfolio is a guarantee that your crypto assets not only stay preserved but can bring you profit in the long term.
Portfolio management is a process of assessing and properly calibrating the digital assets that comprise your portfolio to mitigate possible risks and maximize returns.
In other words, crypto portfolio management is your skill of applying the right tools to the right assets with the aim of improving your financial situation.
To manage your portfolio properly, you need to understand the asset class, be aware of the market trends, pick the right portfolio management style, and use appropriate tools to keep your digital assets well-balanced and diversified.
Another aspect to pay attention to is your emotions. Many people are carried away by their emotions, and this impacts profitability in a negative way. Using the right tools and being consistent will help you to keep your emotions under control and make the right investing decisions.
So, let us have a closer look at all the aspects of portfolio management such as:
Also, let’s have a look at the most typical challenges crypto investors face and the ways to handle them.
There are different types of cryptocurrencies, with the main categories as follows.
For effective digital asset investments, you shall have a clear idea of what these crypto asset classes are and how you can benefit from investing in them.
Coins are cryptocurrencies that run on their own blockchains. They have many use cases, and they are used to pay gas fees whenever a transaction occurs on their blockchain.
Based on the market capitalization, the most spread coins are Bitcoin and Ethereum.
Tokens are digital assets built on top of already existing blockchain platforms. Tokens have a lot of use cases depending on an ecosystem where they are used. Some tokens can give access to specific features of an ecosystem (utility tokens), others represent an investment in a project (security tokens) and are subject to regulation. Finally, asset-backed tokens are backed by a physical asset (real estate, gold, etc.).
Stablecoins are crypto assets that maintain their value relative to a specific asset. Stablecoins are used as a store of value and as a medium of exchange on crypto exchanges. They provide crypto investors with all benefits of crypto and exclude volatility.
The main stablecoins types are the following:
Fiat-backed – backed by fiat or fiat equivalents
Crypto-backed – backed by other cryptocurrencies (normally, reserves shall exceed the number of stablecoins in circulation)
Commodity-collateralized – commodity-backed (gold, silver, crude oil, etc.)
Algorithmic – not backed, their value is maintained stable by special algorithms. While this technology has potential, it is not developed to the extent to guarantee that a stablecoin will maintain its peg to a specific asset.
Non-fungible tokens are unique digital assets stored on a blockchain. While coins and tokens are interchangeable which means that each coin or token can be changed for another coin or token of the same type without compromising its value or integrity, it cannot be done with non-fungible tokens.
Non-fungible tokens can represent anything: digital art, a piece of music, a tangible asset, or whatever, with ownership rights recorded on a blockchain.
The main benefit of NFTs is that they provide content creators and artists with an opportunity to monetize their work transparently and easily. These tokens can be sold and bought on specialized marketplaces, and every change in the ownership rights is recorded on a blockchain.
Crypto market is very dynamic, with new assets evolving every day, and old ones vanishing. Also, cryptocurrency is highly volatile, the price of a coin can change drastically within a very short time. It means that your portfolio needs constant updates.
The way you manage your crypto portfolio depends on your willingness to take risks, experience, and personal preferences. Here are some standard tips on how to create the best portfolio and benefit from any situation in the crypto market.
Before you start investing in cryptocurrency, define your investment goals. It is crucial for proper portfolio management.
Are you investing in the long-term or in the short-term? What is your lifestyle and expectations from the investment?
If you want to benefit from crypto to make a specific purchase, make a payment, or earn some bucks asap, short-time investments are suitable for you. It is also a case if you cannot afford to lock your money for several years or if you are actively trading. In the case of a short-time investment, you earn on the fluctuations of crypto prices in the short term.
If you are saving for your retirement, a child’s education, or for any other purpose that may take at least several years, long-term crypto investments may be the right choice for you. In this case, you can afford locking your funds for a long time, and you expect to benefit from the long-term price increase.
Determining your risk tolerance is another important thing to consider when investing in crypto. What risks can you take to achieve your investment goals? What risks are acceptable in your financial situation? Finally, decide what risks are fine for you to take without stressing out too much.
So, your risk tolerance level depends on many factors, including personal ones. Only if you consider all of them, you will be able to create a proper cryptocurrency portfolio.
Finally, after considering all the mentioned details, you can start working on your investment strategy to create the entire portfolio.
Creating a strategy to manage your cryptocurrency investments is a complex undertaking because your crypto holdings change their value constantly, and the market volatility is very high. Only experienced crypto traders and investors can benefit constantly from any market movements. But even if you aren’t one of them, you can still manage your cryptocurrency portfolio and create a strategy that will allow you to benefit from capital gains in the long term, or from crypto trading – in the short term. Here are some advice on how to do it.
Cryptocurrency portfolio diversification is a must independently on your crypto trading strategies or investment goals. It is highly dangerous to keep all your investments in a single coin. If you have one or two coins only in your cryptocurrency portfolio, and their prices plummet or the projects collapse, you will lose all.
However, if your crypto portfolio has multiple coins, even if one or two assets drop in price, these losses may be compensated with the price growth of other assets.
It is easier to say than to do, especially when there are so many assets in the market. By purchasing unknown coins with a low market cap you are not diversifying your crypto portfolio but increasing the risk of losing your money.
This is why it is needed to pick carefully the coins for your crypto portfolio. It is better to invest in coins with high market cap such as Bitcoin or Ethereum, and those only that are supported by the major exchanges to ensure that there is enough liquidity if you opt for selling assets.
Normally, it is recommended to keep funds in different assets, e.g., stocks, bonds, etc. But here, we are speaking exclusively about crypto portfolio management. In such a case, it is recommended to keep your investment in different crypto classes:
It will help you to minimize risks and create the best crypto portfolio. Also, if you use accounts on centralized exchanges, make sure you keep your funds in multiple exchanges to reduce losses in case of a possible hack or the exchange collapse. While managing multiple portfolios containing multiple assets is complicated, this is the only way to ensure that you can benefit from crypto gains in both long- and short-term.
Portfolio valuation is a crucial step in the creation of the best crypto portfolio. If you use one crypto exchange only, it is easy to evaluate your portfolio manually. But if your investments are scattered across several hardware and software wallets, or if you use many exchanges to benefit from crypto trading, you may need to consider the best crypto portfolio tracker to ensure that your investment delivers a profit.
Here is what you get when using top crypto portfolio tracking apps.
All this will help you to adjust your trading strategies to earn more and to ensure legal compliance of all your activities (paying crypto taxes, etc.)
When choosing the best crypto portfolio tracker, you shall consider plenty of factors that depend on your portfolio type, investment strategy, your daily trading activities, etc. There is no crypto tracker that suits all investors and traders. So, you shall review several crypto portfolio trackers and pick the one that suits your needs.
When choosing a crypto portfolio tracker, consider the following:
Each crypto tracker offers unique features and benefits, and all crypto trackers come with their drawbacks. Thus, you need to consider those crypto trackers that align with your investment strategy and pick the one that you like most.
If you believe that you need not only portfolio tracking but effective portfolio management, you may consider crypto portfolio management software. With it, you expand the options of your cryptocurrency portfolio management.
While diversification and allocation are important, they won’t be of much use if you don’t track the performance of your portfolio and don’t manage it to boost the revenues. So, performance tracking is an important part of your portfolio management strategy.
However, if you use multiple exchanges to trade crypto, and money daily trading crypto by using particular trading algorithms, AI stock trading tools, or other tools to perform multiple crypto transactions daily, tracking the performance of all your crypto portfolios and managing them may be very difficult if possible at all.
This is why independent trading experts developed crypto portfolio management tools for efficient and accurate portfolio tracking and management. A good crypto portfolio management software complements the functionality of a usual portfolio tracker and allows you to leverage all the market opportunities.
There are a lot of crypto portfolio management platforms offering plenty of crypto portfolio management software options. To pick the best crypto portfolio management software, you have to think about your needs as a crypto investor.
For example, if in your location, there is a regulation that requires you to pay a tax on crypto capital gains, you may consider a crypto portfolio management software that includes a tax reporting functionality.
For an inexperienced trader, or if the regulation has just been introduced, it may be difficult to make a crypto tax report. But it doesn’t liberate you from a crypto tax liability. In this case, a good crypto portfolio management software will automatically generate tax reporting documents, including those needed to report capital gains, and pay the capital gains tax, based on the requirements set by the valid crypto legislation.
Using a good portfolio management software that works across various crypto exchanges and aggregates data for tax reporting from the entire transaction history is one of the methods tax professionals recommend to keep your tax records ordered.
If you are not a professional trader, we recommend you keep it simple. Most crypto portfolio management software options have extensive functionality that you may never use. So, pick crypto portfolio management software that offers only the functions that you need.
However, if you are a professional trader, you need crypto portfolio management software that will ensure top portfolio performance for you. You may want to look for these features.
Unlimited exchange connections
Book aggregation across all your exchanges
Proper execution routing
For historical and crypto taxes reporting
Data on trading crypto
Trade history file
Tracking aggregation across multiple exchanges
For multiple instrument coverage
Only by picking the right crypto portfolio management software, you can be sure that the crypto investing picture you get is correct, and your entire crypto portfolio delivers a profit.
Now, when you have picked a reliable portfolio tracker and the best portfolio manager, it is time to think about your investment vehicles. In case of crypto, the following options are available.
If you opt for this investment vehicle, you buy coins and hold them in your crypto wallet. You perform trading or other investment activities on your own.
Crypto funds enable investors to invest in tokens and coins without purchasing them. The funds pool the capital from investors, and invest it in cryptocurrencies. Some funds may invest in Bitcoin solely, some invest in underlying technology, and some invest in mining or trading companies. The profit is distributed to investors based on their share in the pool.
Trading crypto derivatives is similar to trading traditional derivatives. A buyer and a seller agree to transfer the underlying asset ownership at a specific time at a predetermined price.
To manage your portfolio effectively, it is not sufficient to use the best portfolio management software or the most advanced portfolio tracker. You also need to contribute. And to do this, you have to understand some more things.
The aim of fundamental analysis is to find the intrinsic value of a project. It helps to determine whether the asset backing the project is overvalued or undervalued, and invest accordingly.
In crypto, fundamental analysis is different from those typically used for traditional assets because crypto projects do not have the required historical data. This is why all the available information has to be checked and researched properly.
Whitepaper is a crucial document for any project, and if you are looking for an asset to invest in for the long term, reading it is a must. There, check such things as:
Be critical of what the team writes in their whitepaper. Ask questions and make sure you get replies from the team.
A lot of projects listed on CoinmarketCap fail – actually, over 40% fail within a couple of years. This is why it is important to analyze the market and the project’s competitors. And don’t forget to verify who is the team behind the project and whether they have the needed skills to move the project forward.
Fundamental analysis alone doesn’t ensure a successful investment. You shall combine it with technical analysis which uses price patterns of the past and technical indicators to forecast the asset price movements. Here, portfolio tracking tools may be of great help.
Finally, for a more comprehensive understanding of how an asset price may move, include also sentiment analysis. There, you check and analyze social media trends and news impact on the crypto market and thus, a specific project.
Portfolio tracking and management, using the best portfolio management software, along with the most detailed market analysis won’t improve your portfolio if you don’t apply proper risk analysis tools to mitigate risks.
Diversify your assets, never put all eggs in one basket by relying on a single project to ensure your financial future. Pick several coins from various sectors, and make sure to perform a proper research on all of them to make sure your investment won’t turn into a waste of money.
Pick projects from different locations. Crypto is still not accepted worldwide, and legislation tends to change constantly. Some countries welcome cryptocurrency while others ban it. If a project in one country faces regulatory scrutiny, another project located in another country may prosper and deliver a significant profit. This will reduce the losses or compensate them fully.
Hedging is a method of mitigating risks of existing portfolio positions. It can be useful to anyone who wants to protect his funds from volatility. In the world of crypto, using derivatives is one of the most popular hedging instruments. Derivatives allow investors to gain exposure to the asset’s price movements without owning an asset which can be very valuable because it eliminates the need for a custody solution.
The most common derivatives are options and futures. Both allow crypto investors to long and earn a profit when an underlying asset grows in value or to go short and profit when an underlying asset is decreasing in value.
Another way to hedge your investment is to use stablecoins. Their value is pegged to a fiat currency and thus, they are not susceptible to asset volatility. There are different types of stablecoins, and not all of them are equally reliable. This is why it is important to research each coin before transferring your fiat or crypto into it.
The risk and reward ratio helps investors to manage the risks of losing money when trading. This ratio is different for different asset types, but the principle is the same for all your investments: you shall take higher risks only if the profit is also higher. Taking high risks without expecting a rewarding profit in perspective is a thing that shall be avoided.
Many investors ignore such a thing as portfolio management, and as a result, lose their money in the very end. While the mentioned techniques are the basics of portfolio management, they will be very useful for those who are starting their way in the world of crypto investments and trading.
Technologies are developing, the number of assets and projects is growing, and regulators tend to be developing a clear regulatory framework for crypto. It means that over time, investing in crypto will become more challenging, and the need for efficient tools and techniques to manage a crypto portfolio will be growing.
Disclaimer. This material should not be construed as a basis for making investment decisions or as a recommendation to participate in investment transactions. Trading digital assets may involve significant risks and can result in the loss of invested capital. Therefore, you must ensure that you fully understand the risk involved, consider your level of experience, investment objectives, and seek independent financial advice if necessary.