As the popularity of cryptocurrencies continues to grow, more and more people are turning to crypto as a form of investment. Altcoins tend to offer a greater return due to their volatility, hence many crypto investors tend to explore beyond blue chip cryptos like Bitcoin and Ethereum after being red pilled.
If you are thinking of leveling up by investing in a wider range of cryptocurrencies, managing a crypto portfolio will eventually become a complex and challenging task.
In this guide, we hope to equip you with the fundamentals to become your own cryptocurrency portfolio manager. We’ll lay out the task ahead and share the potential challenges you’ll face, the best practices in crypto portfolio management that you should know and some tools that you can use to be a more efficient investor.
Let’s get into it:
What is a Crypto Portfolio?
A crypto portfolio is the collection of digital assets, such as coins and tokens that you hold.
Think of it like your stock portfolio, but instead of stocks, it contains various cryptocurrencies. And likewise, as a crypto investor, you should be tracking the performance of your crypto portfolio. The value of your crypto portfolio is determined by the combined value of all the assets in the portfolio.
A crypto portfolio can include a variety of coins such as Bitcoin, Ethereum, Litecoin, and more. It starts getting complicated once you have a tad too many coins, and/or if you get into airdrops. (more on airdrops in another article next time!)
What You Need to Know About Cryptocurrency Portfolio Management
Cryptocurrency portfolio management is the process of managing and monitoring a portfolio of cryptocurrencies. This includes buying and selling coins, monitoring market trends, and making decisions about when to hold or sell.
It’s important to note that cryptocurrency is extremely volatile and the market moves quickly. Therefore you’ll require a different approach to traditional portfolio management.
Warning: Crypto investors need to be comfortable with high volatility and the lack of regulation in the market.
3 Goals of Crypto Portfolio Management
1) Maximize returns
Your first goal in cryptocurrency investing is to maximize your returns on investment. This means that you need to be stay ahead and be aware of the ever-changing market conditions, so that you can make informed decisions about when to buy and sell cryptocurrency assets.
On top of doing proper research on the coins you’d like to buy, having an efficient cryptocurrency portfolio management strategy is essential. This will enable you to identify which coins are performing well and which ones you should cut your losses on.
2) Minimize losses
If you’re planning to allocate your capital across smaller altcoins, it is also important to diversify across different coins and tokens. Proper crypto portfolio management practices allow you to do so efficiently. This will helps to spread out your risk, which can ultimately lead to reduce your losses while increasing the potential of greater returns.
3) Keeping score
Cryptocurrency portfolio management also involves tracking your assets. The crypto markets are ever changing, new coins and tokens are released (and die off) quickly.
Without proper tracking, you’ll find yourself struggling to find where and how much tokens you actually own over time.
This is especially important if you’re living in a region where your crypto transactions will impact your taxes. Where cryptocurrency trades are taxable events, you’ll need to be aware of how your trades will affect your taxes. This means you’ll need to diligently keep track of your cryptocurrency purchases, sales, and exchanges so that you can accurately report your cryptocurrency gains or losses on your tax returns.
Portfolio management basics
Before starting to manage your crypto portfolio, it’s important to have a solid understanding of the basics. Here’re fundamentals of tradition portfolio management that you should apply across your investments:
1) Diversification: This is the practice of spreading investments across different asset classes and sectors to reduce risk and volatility.
2) Rebalancing: The process of periodically buying or selling assets in order to maintain a desired level of portfolio diversification.
3) Risk Management: This involves examining volatility, potential of a project or token to succeed and more. (AK shares how he does this in his live webinar.)
Best Practices of managing a cryptocurrency portfolio
Managing a crypto portfolio can be a complex and time-consuming task. However, by applying the best practices of portfolio management, you can minimize risk and maximize returns.
Here’s how
- Diversify: Diversifying your portfolio is one of the most important steps in managing your crypto investments. This means spreading your investments across different coins, rather than putting all your eggs in one basket.
- Regularly monitor the market: It’s important to stay up-to-date on market trends and news. This will help you make informed investment decisions and adjust your portfolio as needed.
- Keep your portfolio balanced: Regularly review your portfolio to ensure it’s balanced and aligned with your investment goals. This may involve reallocating funds from one coin to another or selling coins that are underperforming.
- Have a long-term strategy: Crypto investing is a long-term game. It’s important to have a long-term strategy in place and stick to it. This will help you avoid making impulsive decisions based on short-term market fluctuations.
How do I manage my crypto portfolio?
All that sounds great and all, but how do you actually go about managing and tracking your crypto portfolio?
Here’re some tools that I’ve found useful:
Excel / Google Sheet
If you’re new to the scene, a simple excel sheet will suffice. You’ll want to track the following:
- Cryptocurrency
- Average buy price
- Amount owned
- Notes on where you’re storing it
Coingecko
Coingecko is a crypto price tracking website. You can create a free account and use their portfolio tracker to track the performance of your assets. You can include your buy and sell transactions with details like the fees involved. You can also take notes for each transactions.
Coinmarketcap
Likewise, Coinmarketcap is a crypto price tracking website. It is owned by Binance. With a free account, you have access to their portfolio tracker. I would avoid recording any sensitive information on any of these services.
CoinTracker
CoinTracker is a cryptocurrency portfolio management platform. This is a paid service and may be more suitable for the serious crypto investor. It makes it easy for you to track your portfolio by syncing up with exchanges and wallets, compiling all your transactions into one single app.
Common Mistakes in cryptocurrency portfolio management
Common mistakes can lead to poor returns and increased risk.
Avoid these pitfalls:
- Not diversifying: One of the most common mistakes in crypto portfolio management is not diversifying. This means investing in only one or a few coins, rather than spreading investments across different coins.
- Not monitoring the market: Another common mistake is not monitoring the market regularly. This can lead to missed opportunities or losses if you’re not aware of market trends and news.
- FOMO: FOMO (fear of missing out) is a common problem in the crypto market. It’s important to avoid making impulsive decisions based on short-term market fluctuations and stick to your long-term strategy.
- Not having clear investment goals: Without clear investment goals, it can be difficult to make informed decisions about which coins to buy or sell, and when. It’s important to have a clear understanding of your risk tolerance and investment objectives, and to regularly review and adjust your portfolio as needed.
- Overcomplicating portfolio management: Some investors try to use complex strategies or tools to manage their portfolio, but this can actually lead to more confusion and mistakes. It’s important to keep things simple and stick to a straightforward, well-diversified portfolio.
Conclusion
If you’re investing in cryptocurrencies, you should understand the fundamentals of cryptocurrency portfolio management.
Remember, cryptocurrency is a highly volatile market, and it’s important to stay informed and make decisions based on clear investment goals. Keep your portfolio well-diversified, regularly monitor the market, and have a long-term strategy in place. And most importantly, don’t make impulsive decisions based on short-term market movements.