How to Deal With Uncertainty in the Notoriously Volatile Crypto Space

Investing in crypto is a little like getting on a roller coaster with a blindfold on—plenty of unforeseen ups and downs make the ride exciting and scary at the same time. With crypto, however, real money is at stake, which can make the downs far more frightening than a sudden plunge on an amusement park ride. 

So, for those of us who believe crypto is here to stay (both as a practical, digital currency format and as an investment vehicle), how can we invest wisely, without fear, and in a way that is sustainable? Most of this comes down to using diversification, planning/automation, and longer time horizons in order to remove emotion from the equation. 

Spoiler alert—the ideas in this article probably won’t appeal to risk-hungry swing traders or those aiming to time the market and cash in on a lump-sum investment that directly precedes a moonshot. 

Diversification

Diversification is a broad term, and it means different things in different investment circles. Here, we’re talking about diversification within an investor’s crypto portfolio specifically.

But, before we dive into that, it’s worth mentioning that even though it seems highly likely that crypto is here to stay (after all, hundreds of governments, businesses, celebrities, and even professional fund managers have bought into the scene), it is never wise to put all of your eggs in a single basket—especially when thinking about retirement. So, before diversifying your crypto portfolio, be sure that your savings include other asset classes (e.g., cash, stocks, fixed-income investments, real estate, etc.) as well. 

Now, back to crypto—as we all know, new coins and projects emerge all the time, and for every few that launch skyward, there are countless others that plummet into obscurity and never end up grabbing much market share. 

So, first and foremost, investors interested in long-term growth should make sure they have exposure not just to many different coins, but to many different kinds of coins. Let’s take a look at a hypothetical, well-diversified crypto portfolio:

 

30% large-cap, mainstream currencies (e.g., Bitcoin, Ethereum, Litecoin, etc.) 

20% native tokens for popular platforms (e.g., Binance Coin) 

20% small and mid-cap coins with good use cases that you believe in (your choice)

10% interest-earning stablecoins (e.g., USDCoin, [fill in the blank], etc.)

10% staking rewards coins (e.g., Cardano, Polkadot, etc.) 

10% passive income coins (e.g., HODL token)

A great way to hedge against inflation is to buy HODL and stake it on the HODLX exchange. You can stake your HODL to earn a high yield interest in the form of HODLX tokens. You can use those earned tokens to stake, sell, or a combination of both. It’s a great strategy to make your tokens work for you to earn even more.

With a well-diversified crypto portfolio, you can cash in on massive price surges in the major coins while also collecting staking rewards, reflections, interest, and other income by holding income-oriented coins during lulls and downtime. You can also dedicate a portion of your portfolio to projects you really love and believe in. If they blow up, so will a portion of your portfolio! 

Just as important, if one sector of your portfolio plummets, you won’t lose it all. Big coins like BTC and ETH are good safety bets since they are well known, have large user bases, and are highly liquid and thus easy to trade. Coins that allow you to earn by holding—whether through staking, interest, or reflections, can also help offset temporary losses you may incur if some of the tokens in your portfolio lose value quickly. 

Planning and Automation

Everyone needs enough money for their day-to-day and month-to-month expenses, and many of us like to have some extra cash on hand for emergencies. That’s just good planning. This money is not for investing in crypto. 

Your crypto investment funds should come out of any discretionary income you have after expenses, emergency fund contributions, spending money, and savings. So, let’s say you have an extra $100 a month and you want to invest it in crypto. The best way to do this as a long-term growth-oriented investor is to use dollar-cost averaging to automate your investments and avoid emotional decisions. 

Watching the crypto market is stressful, and emotion-based moves like panic selling and FOMO buying have decimated the portfolios of many starry-eyed DeFi enthusiasts. Instead of reacting rashly to every Elon Musk tweet or viral Reddit post on r/crypto, consider turning a blind eye to the news and sticking to a plan. 

First, design your portfolio. You can use the allocation example above and then change out categories and percentages to fit your goals and preferences. Figure what percentage of your portfolio you would like to have allocated to each coin you’re interested in. Set up automatic investments on your app/platform of choice, and invest the same amount every month (or every week) in the same coins at the same proportions. This way, you’ll buy more of each asset when it’s cheaper and less of each asset when it’s more expensive. 

If you trust your portfolio in the long term, dollar-cost averaging is a great way to avoid letting short-term price swings convince you to kick your well-laid plans to the curb and make an emotional trading decision. 

Longer Time Horizons

No one knows when or how quickly any particular crypto asset is going to go up in value, but as the crypto space gains more and more traction in mainstream finance, most believe that higher highs are on the horizon. Cathie Wood, manager of Ark Invest, predicts that Bitcoin could hit $1 million by 2030. Whatever the case may be, digital currency is useful, and the blockchain has countless applications both inside and outside of the realms of finance, so the realm of DeFi technology probably isn’t going away any time soon. 

That being said, it can take a long time for an investment to pay off. How long? When it comes to crypto, we don’t really have enough historical data to make predictions with any degree of certainty. That’s why hanging in there for the long haul is likely your best bet in terms of solid gains. The more people and companies adopt crypto, the more a well-diversified crypto portfolio is likely to appreciate in value. 

Getting rich quick by dumping one’s life savings into a single project could be the thrill of a lifetime, but if you’re not looking to lay your livelihood on the line for a minuscule chance of a lottery-like payoff, the best way to get in on the action is probably to balance risk with reward, keep emotions out of the equation, and hang in there for the long haul. Keep adding to your positions, stay informed, add or remove projects and tokens from your bullpen as needed, and watch your digital savings grow slowly but surely. Good luck! 

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