How to Build a Cryptocurrency Portfolio in 2023?

By February 6, 20235 minute read
How to build a cryptocurrency portfolio in 2021_WazirX
Note: This blog is written by an external blogger. The views and opinions expressed within this post belong solely to the author.

Looking back a decade ago, Bitcoin was nothing but an experimental technology that promised to revolutionize the financial system. It was not considered an investment class but simply a new way of making payments. But now, you often meet individuals who regret not investing or mining bitcoins in their early days. And rightfully so.

In the last one-one and a half years, the global crypto market became a gigantic USD 2 trillion industry that grew at an exciting rate. The industry was not only disrupting the legacy currency and financial systems but had also given momentum to newer industries like DeFi and the NFT marketplace. All this has pushed cryptos to a zealously pursued investment alternative.

However, before you buy cryptocurrency in India, it is crucial to understand that investing in an unregulated and volatile market like cryptos holds substantial risks. This makes it critical to trade with caution since high profits are always associated with increased risks. But there’s nothing to worry about. Here are some tips that can help a beginner to manage and build a profitable portfolio.

Let’s check them out!

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#1 Diversify your portfolio

Portfolio diversification is one of the most prominent risk management techniques available. You should never go all in. And why so? In an unfortunate event of a market crash or a crash of a particular genre of coins or rug pull of a specific token, you might be able to save your portfolio if you have not bet all your life savings into one crypto asset or a particular class of cryptos.

Moreover, short-term crypto-asset market movements (> 3 months) are generally based on certain waves, which is usually the hot topic of that bull run — for example, the Dogecoin jump and NFT craze. So diversifying means tapping into safer, riskier, and such wavicle coins. Here’s where you can use various crypto classes to your advantage.

Classification of cryptos: An investor’s point of view

Every investor must ensure that they have at least one of the below categories in their portfolio and adjust their risk-to-reward ratio accordingly. The list includes the most popular cryptos as well.

  • Asset class cryptos

These are legacy cryptos that are early forks of BTC and have been long used as a medium of transaction. From an investor’s point of view, the success of these cryptos resulted in the birth of the crypto industry. These top cryptos are relatively low risk and offer medium rewards during a crypto bull run. For example:

  1. Bitcoin (BTC)
  2. Litecoin (LTC)
  3. Bitcoin Cash
  • Infrastructure class cryptos

These coins are usually native to blockchain ecosystems. Therefore, the demand and volumes of these coins increase according to upcoming events, institution collaboration, or adoption. Some of the coins in the top crypto-list fall under this category. For example:

  1. Ethereum (ETH)
  2. Cardano (ADA)
  3. EOS (EOS)
  • Service class cryptos

These cryptos are generally native to companies that are aiming to solve a particular problem in the crypto space or give out special services. The long-term price actions of such coins depend on the quality of technology, adoption (retail or institution), and generated revenue. These coins are usually the most profitable, but they come under the umbrella of the riskiest crypto assets.

  1. Uniswap (UNI)
  2. MATIC

An investor needs to accumulate all these three types of crypto-asset classes for a profitable and, importantly, safe portfolio.

#2 Do not just scalp

Scalping might give an investor quick profits and is an important element of earning with cryptos. It also helps an investor to keep up with the crypto market. However, never commit more than 10% of your portfolio, especially if you scalp using margin or leverage. Never forget, scalping involves leveraging volatility to maximum advantage, and having more skin in the game can leave you vulnerable to volatility storms.

#3 Farm and stake

Investors who are looking to hold their cryptos for the long term can, instead of locking them in an exchange, stake or farm those tokens to earn an interest in a fixed period. And you can do this with the most popular cryptos available in the market. These activities are the backbone of the DeFi sector.

#4 Portfolio rebalancing

This is one of the best strategies to ensure that you are in charge of your investments. In portfolio rebalancing, an investor reorganizes their allocated portfolio from time to time. In a maturing market like crypto, strategically positioning yourself is very important if you want to make good profits. Portfolio rebalancing is the first step to a profitable career in cryptos. For example, Solana is predicted to rise by the end of the year. So you can position yourself to profit from this market shift when you buy cryptocurrency in India.

#5 DYOR (Do Your Own Research)

In 2023, it is essential to do your own research since there are many malicious elements in the market that might guide new investors in the wrong direction. The vast majority of coins don’t get adequate exposure, and there are many in their accumulation stage. Also, crypto scammers are always on the lookout for potential scams. Lat year saw some major hacks and scams.

Some Frequently Asked Questions 

What is the difference between developing a crypto portfolio and a stock portfolio?

As mentioned above, cryptos are relatively more volatile. A 10% pullback is a dip in crypto, but it is a crash in the stock market. While building a crypto portfolio, one needs to factor in several elements like volatility, the price difference in various pairs and markets, global markets, global news, potential growth, etc. A perfect crypto portfolio needs to be strategized accordingly after weighing the most popular cryptos in the abovementioned parameters.

What are some of the common mistakes made by beginners while building a crypto portfolio?

  • Going all in

When buying cryptocurrencies in India, beginner investors usually invest all their capital in a particular crypto asset that could dearly cost an investor if things go south. But, even if it doesn’t, there is always an opportunity cost. There are always multiple opportunities to invest in different coins during a bull market which will have different return potentials and associated risks.

  • Overtrading

Even if you are a spot investor, trading can be beneficial. It can be used for anything – from hedging against the market or earning with the market trends. But overtrading is something a trader on a profit spree or back-to-back losses might do, which can be reckless.

As a crypto trader, recklessness might lead to dire consequences and hence should be avoided.

  • Not keeping some spare USDTs.

With crypto, there will always be a chance of another buying opportunity, probably lower than your entry points. Keeping some spare USDTs might help change the crash into an opportunity for profits. You never know which crypto assets will make it to the list of the top crypto next.

What are some common strategies that can benefit your portfolio?

Any kind of investment is all about approach; therefore, it is important to pre-plan and select the strategies that fit you.

  • Rupee Cost Averaging/ Dollar Cost Averaging 
  • Diversifying 
  • Keeping some USDTs aside for going with the market trends

If you want to make a crypto portfolio in 2023, you also need a good exchange; check out WazirX,  which lets users buy crypto assets with INR at shockingly low transaction fees.

Is Ethereum Safe To Invest?

The Bitcoin market is unquestionably more volatile than the stock market. This may not be the market for you if you are incredibly risk-averse. Ethereum, on the other hand, may be a terrific investment for you if you're a diamond-handed investor who won't lose sight of short-term losses. Ethereum is a relatively safe investment as it is also based on blockchain.

Is Pi Cryptocurrency Safe?

Pi Network (PI) is the newest digital token to catch the cryptocurrency community's interest, even before it has wholly debuted. Some users see it as a chance to get engaged in a cryptocurrency from the beginning and profit in the future, similar to how early Bitcoin adopters made huge profits by mining and keeping the coin. Other users have compared Pi to a worthless multi-level marketing (MLM) scheme.

What Is The Meaning Of Crypto?

A cryptocurrency is a digital currency that is secured by the process of cryptography, making counterfeiting and double-spending almost impossible to happen. Blockchain technology is used to produce cryptocurrencies ( a distributed ledger enforced by a distributed network of computers). Cryptocurrencies are distinct in that a centralized authority does not issue them.

Is Cryptocurrency Legal In India?

In India, cryptocurrencies are legal; anyone can purchase, sell, and trade cryptocurrencies. They are currently unregulated; India does not have a regulatory framework in place to regulate its functioning. According to the Ministry of Corporate Affairs (MCA), companies must now declare their crypto trading/investments during the financial year, according to the Ministry of Corporate Affairs (MCA). Cryptocurrency transactions have been taxable in India when people receiving such gains are Indian tax residents or where the crypto is considered to be domiciled in India

Is Cryptocurrency Safe To Invest In?

Cryptocurrency investments are subject to market risks, but if sufficient security measures are not taken, trading accounts can be maliciously accessed. Investments come with risks and uncertainties, and we cannot claim that any digital currency investment is risk-free. Buying and selling cryptocurrencies can be risky even if the trader is knowledgeable about the market and treats their coins carefully.

Is Bitcoin And Cryptocurrency The Same Thing?

Bitcoin is a cryptocurrency that was designed to facilitate cross-border transactions, eliminate government control over transactions, and streamline the entire process without third-party intermediaries. The absence of intermediaries has resulted in a significant reduction in transaction costs. Satoshi Nakamoto, the creator of Bitcoin, created the first cryptocurrency in 2008. It began as open-source software for money transfers. Since then, plenty of cryptocurrencies have emerged, with some focusing on specific fields.

Which Cryptocurrency Is Best To Invest In 2021?

Many altcoins are flourishing to invest in. Some cryptocurrencies with great potential are Ether, Ripple, Tron, and more. Investors are trying to diversify their portfolios and are flocking to the leading cryptocurrencies. Many growing businesses are already accepting cryptocurrency as acceptable payment methods.

Are Cryptocurrencies Legal In India?

In India, cryptocurrency is legal, and anyone can buy, sell, and trade it. Because India lacks a regulatory system to regulate its operations, it is presently uncontrolled. According to the Ministry of Corporate Affairs, companies must now document their crypto trading/investments inside the financial year.

How To Invest In Cryptocurrency Stocks?

Cryptocurrency can be purchased in two ways: through mining or exchanges. The process of confirming and adding transactions to the blockchain public ledger is known as cryptocurrency mining. Cryptocurrency exchanges are another option. Exchanges make money by charging transaction fees, but there are alternative platforms where you may communicate directly with other cryptocurrency traders.

What Is The Safest Cryptocurrency To Invest In?

Bitcoin has had the highest market capitalization, has been around the longest, has the most experienced development team, and has enormous network impact and brand recognition. As a result, while trading cryptocurrencies, the rate of return on Bitcoin is commonly used as a benchmark. However, the risks associated with cryptocurrencies remain, and the safest cryptocurrency for you depends on your analysis.

Disclaimer: Cryptocurrency is not a legal tender and is currently unregulated. Kindly ensure that you undertake sufficient risk assessment when trading cryptocurrencies as they are often subject to high price volatility. The information provided in this section doesn't represent any investment advice or WazirX's official position. WazirX reserves the right in its sole discretion to amend or change this blog post at any time and for any reasons without prior notice.

What Is Cryptocurrency?

A cryptocurrency is a digital currency secured by encryption, due to which chances of activities such as counterfeiting and double-spending taking place get close to impossible. Cryptocurrencies get created on blockchain technology ( a distributed ledger enforced by a distributed network of computers). Cryptocurrencies are unique in that they do not get issued by any central authority. The term "cryptocurrency" comes from the encryption techniques used to keep digital currencies and the network safe.

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Shashank

Shashank

Shashank is an ETH maximalist who bought his first crypto in 2013. He's also a digital marketing entrepreneur, a cosmology enthusiast, and DJ.

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