How to Build a Balanced Crypto Portfolio

Just as you should have a balanced portfolio when trading fiat assets, the same goes for cryptocurrency. But, unlike fiat assets, it can be a bit harder to manage your risk when trading in crypto.

There are three steps to building a balanced portfolio with cryptocurrency. Keep reading to learn more about the cryptocurrency trading world so you can design the balanced crypto portfolio that is right for you.

Step 1: Starting Investment

First and foremost, the method you use to balance your portfolio will depend heavily on your starting investment. While you can start with as little as $500 USD and have a decent portfolio, we think to have the most options, you should attempt to start with an amount a little closer to $1500.

Of course, if you have it on hand, $5,000 or $10,000 is even better, as you will have even more options to keep your portfolio balanced. That being said, you can start with as little as $10 it will just be difficult to keep your portfolio balanced.

Step 2: Buy Bitcoin

Bitcoin should be a staple in every cryptocurrency portfolio, which is why we recommend allocating 40%-50% of your beginning capital to it right away. While Bitcoin is still volatile, it is much less volatile than some other cryptocurrencies and a great way to get your start.

Those with only a small amount of beginning capital won’t be able to hold much Bitcoin, but that’s okay. This is going to be the anchor of your portfolio, and hopefully, no matter how little you have, it will grow in value over time.

Step 3: Buy a Token to Stake

Buying a cryptocurrency that can be staked is critical in any cryptocurrency portfolio. While we recommend something like Ethereum or Solana, truly, any staked token will do.

A staked token is important because it helps you generate income regardless of the value of the original token. Just make sure that whatever you buy, you stake 100% of it and select to have the returns reinvested. We recommend filling 40% of your portfolio with one or two staked tokens.

Step 4: Buy a Risky Crypto

Although you hear crazy stories of a token that makes it big, know that this is the exception to the rule and not the norm. That being said, it does happen, and if you are comfortable with a little risk, we recommend allocating 10% of your initial capital to something more speculative. This can be something speculative like Dogecoin, or some currency we have never heard of. Just make sure you don’t invest more than 10%.

It is also important to keep an eye on this portion of your portfolio and prepare to sell if the token does increase tremendously in value. Know that this may be unlikely though, and there is a chance the token you have purchased is a pump and dump scheme. Regardless, you can skip this step, but we recommend putting this 10% into Bitcoin if you don’t want to engage in something risky (hence the range in section 1 above).

Step 5: Buy a Stablecoin

Stablecoins typically aren’t investment grade, but they can give your portfolio a small sense of security. Unless you are ready to face the emotional aspects of trading, we recommend devoting the remaining 10% of your portfolio to a stablecoin.

Not only will this stablecoin make you feel better about the numbers you see on the screen, but it will also allow you to have liquidity if you do need to make changes. Those with a high risk tolerance can use this final 10% for another risky altcoin if they would like.

For stablecoins, we recommend USDC or the tokenized version of your local fiat, as this will help keep it simple if you need to trade. Just make sure you don’t choose Tether, as this defeats the purpose of choosing a stablecoin.

So, in summary, here is the best spread for a balanced crypto portfolio:

·      40% in Bitcoin

·      40% in a staked token (Ethereum or Solana recommended)

·      10% in something risky (DOGE, SHIB, ADA, or an unknown token)

·      10% in stablecoins (anything but Tether)

Obviously, this is just a basic suggestion, but in our opinion, this is an easy-to-follow and easy-to-understand starting balance for your portfolio. Remember that 80% of your portfolio won’t be traded (the BTC and the staked token), as the purpose of these is to generate income in the long term. The remaining 20% should be treated as more liquid, allowing you to trade and adjust as needed.

Should You Include Crypto ETFs in Your Portfolio?

In January 2024, the US government approved Bitcoin ETFs, and Ethereum ETFs soon followed. Now, additional ETFs are being added to the market as we speak. While these can be added to your portfolio, we don’t think there is enough science on them to recommend them for the average investor.

As of the writing of this article, crypto ETFs are only 1-2 years old. This means that they have been around far shorter than Bitcoin, Ethereum, and the other commodities backing the ETF. While this doesn’t make them bad, this does mean it is harder for us to recommend them as we are uncertain about their performance.

If you do want to include them in your portfolio, we recommend choosing them as the 10% risky cryptocurrency. Chances are, they are slightly less volatile than whatever you would have chosen to invest in here instead.

How Often Should You Rebalance a Crypto Portfolio?

In our opinion, 80% of your crypto portfolio should be tokens you are hodling, as well as staked cryptocurrencies—meaning you shouldn’t be rebalancing them ever. The remaining 20% of your portfolio should be rebalanced every six months, or as you deem necessary.

While cryptocurrency portfolios don’t require as much time or energy as fiat ones (unless you plan to day trade as that is a whole different ballgame) checking in every 6 months will leave your options open just in case you do need to trade away that one risky token that just isn’t going in the direction you thought it would.