Key Considerations When Diversifying Cryptocurrencies

Risk Tolerance

Your personal risk appetite will dictate what percentage of your portfolio is allocated to cryptocurrencies in comparison to other asset classes, as well as what percentage of your cryptocurrency portfolio you allocate to specific cryptocurrencies. It’s important to perform a comprehensive risk assessment of any cryptocurrency before you consider investing, as failing to do so can significantly impact the risk-reward ratio of your portfolio.

Failure

The reality is that most cryptocurrency projects will almost certainly fail over the long-term for a variety of different reasons including (but not limited to): low user adoption, poor management, lack of innovation, technical failure or outright malicious intent. This high possibility for failure underscores just some of the reasons why investors are apprehensive to invest in cryptocurrencies and why those that do tend to be conservative with their approach and allocations.

Different Industries & Use Cases

We’ve covered the risks involved with investing in one industry or sector, and this same theory can be applied to the way you structure your cryptocurrency portfolio. If you own several cryptocurrencies that are all based within the same industry or designed to solve the same problem, you may be exposing yourself to unnecessary risk. For example, if the industry or sector you base all of your cryptocurrency investments no longer has a demand or need for a blockchain-based solution, the entire value of your cryptocurrency investments could be significantly impacted.