A low-risk crypto portfolio can provide great benefits for patient investors. It helps access greater predictability over asset changes, considering market movements, economic news, and global disputes. However, the lower the risk, the slower the returns will appear.
This is why many users are engaging in high-risk investing or trading, as these activities offer better rewards at a faster pace. Unfortunately, the majority of them will lose the value of their investment or pick low-performing investments. Learning how to purchase cryptocurrency is not enough ― you must also master managing your assets, allocating them properly, and adjusting them based on various factors.
Let’s determine the steps to finding the best crypto projects suitable for low-risk investing.
Start With The Basics
Evaluating a cryptocurrency should begin with its whitepaper, the document that explains its technical and economic features. Every trustworthy project has a whitepaper written by the development team to guide investors, miners, or developers on how to best use it.
Bitcoin and Ethereum have thorough whitepapers outlining technical specifications and propositions for solutions over traditional finance. These are also the leading cryptocurrencies whose reliability has been proven over time, as they have withstood different market cycles, from bullish to bearish, and still maintained their value.
It’s best to avoid coins without a whitepaper, or if the document is poorly written and attempts to persuade users to invest with a sense of urgency, this may indicate a possible fraudulent project.
Enumerate The Use Cases
Low-risk investing relies on cryptocurrencies with real-world use cases. This indicates that the coin will remain relevant even during challenging market times, making it valuable to you. Some of these use cases include the following:
- Payments and remittances with crypto come with low costs, faster settlements, and global reach, making them highly valuable for the future:
- Decentralized Finance (DeFi) eliminates the need for intermediaries, and it can expand to unbanked users globally;
- Play-to-earn games allow users to spend and earn digital currencies in multiple decentralized ecosystems;
Yi He, Co-Founder at Binance.com, explained that “Crypto isn’t just the future of finance – it’s already reshaping the system, one day at a time.” Therefore, investing in what matters now can help you build a stable and profitable portfolio.
Check The Market Metrics
While there’s plenty of information on the crypto market, you can use tech tools to provide clear comparisons on the cryptocurrencies:
- Market capitalization: This feature shows the size of the coin and its influence on the market. Bitcoin, as the biggest asset on the market, can trigger trends among altcoins;
- Trading volume: This index measures the frequency of cryptocurrency transactions in terms of activity and liquidity. The more liquidity there is, the safer and less volatile the asset is;
- Supply: This factor can give insight into the future of the price, so if there are fewer tokens circulating at the moment, there are fewer chances of price dilution;
Still, remember that price fluctuations are normal in crypto, so volatility isn’t always concerning, especially when it’s too dramatic. The highest of highs followed by significant lows may be a sign of a pump-and-dump scheme.
Compared Different Asset Classes
Categorizing cryptocurrencies is ideal for understanding their roles and use cases. For example, Bitcoin is considered a store of value and is regarded as the safest and most reliable asset for real-world transactions. On the other hand, Ethereum, as an altcoin, focuses more on the underlying technology improving cryptocurrencies, such as smart contracts.
Stablecoins are another notable asset to consider adding to your portfolio. They are backed by fiat money reserves, such as the US dollar, and follow their courses instead of being affected by regular volatility. Finally, meme coins, such as Dogecoin, are inspired by popular memes. However, since they don’t hold any true value, they’re supported by communities, which makes them more unstable.
Of course, there are many other assets, including utility tokens, infrastructure tokens, and governance tokens, each with a distinct purpose and benefit for your portfolio.
What Mistakes To Avoid When Building A Portfolio
Although you’re building a low-risk portfolio and are not exposing yourself to high-risk assets, some errors in the process might lead to drawbacks. For instance, skipping due diligence just because you have a rough idea of how these assets work, or how the market functions, can set you a few steps behind. The cryptocurrency market is a broad ecosystem in which you can never know all the terms, processes, and new developments. Therefore, continuing to educate yourself, even after gaining a few years of experience, is key to maintaining a stable and efficient position.
Another mistake is failing to rebalance your portfolio. Even if it includes low-risk investments that are not prone to volatility, they can still shift due to market changes, during which you may need to adjust it. This means reallocating assets according to the cryptocurrencies’ productivity.
When Is The Time To Switch To High-Risk Investments?
A low-risk portfolio typically includes safe coins, and the investment phase can take several years to establish a balanced portfolio. However, if you’re looking for increased rewards, high-risk trading might be the solution. This involves a more active approach, as you may need to buy and sell within the same day or week, during which you can take advantage of low prices and high demand stages of the crypto market.
However, this comes with the risks of losing all your assets and future opportunities. Therefore, try not to invest more than you can afford to lose, and always have an account to back you up in case of such an unfortunate event. Ideally, you should have an emergency fund that holds 3 to 6 months of savings, covering both fixed expenses and unexpected ones, to help you manage a period of financial struggle.
Final Considerations
Building a low-risk cryptocurrency portfolio requires a significant investment of time to research the best coins, as well as to analyze market conditions. Additionally, you must reallocate assets to ensure stability during bear markets and invest for the long term to create real value.
