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How to build a diversified and profitable cryptocurrency portfolio

George Sweeney 28th Apr 2022 No Comments

Reading Time: 6 minutes

If you’re planning on investing in cryptocurrency, one of the best ways to maximise your profits and minimise your losses is by creating a diversified portfolio. But how do you actually do that?

This guide covers everything you need to know about creating a diversified and profitable crypto portfolio. Keep reading to find out why diversification is so important, and – how to arrange and track your digital assets.

Click on a link below to jump straight to a specific section or read on for all the essential details…


What is a cryptocurrency portfolio?

This simply refers to holding a variety of cryptocurrencies. There are heaps of digital assets available for you to invest in, all with different purposes and goals.

If you’re interested in putting some money into crypto, understanding how to build yourself a proper portfolio can really improve your chances of making money.

And, more importantly – reduce the risk of losing everything.

You don’t have to be a computer programmer whiz either! These days it’s easier than ever to invest in different cryptocurrencies and track their performances.

paper pen and calculator showing cryptocurrency portfolio


How much crypto should you have in your portfolio?

This will depend on your personal circumstances and attitude towards risk.

When thinking of your total investment portfolio, you may want to dedicate a certain percentage to crypto investments.

Often, the best thing to do is to make sure you stay diversified with your investment portfolio. Over-reaching into any single area can expose you to more risk.

Some experts recommend around 1% of your total net worth. But, these kinds of recommendations are usually directed towards wealthy people where 1% of their portfolio can be a fair lump of cash!

Realistically, if you have a £10,000 investment portfolio, spreading a hundred quiz across a range of digital assets isn’t likely to see massive returns.

If you’re younger or happier taking more risks with your money, then you might want to dedicate a larger percentage into this space, with the hope of greater returns.


Why is it important to diversify your cryptocurrency portfolio?

This is still an up and coming space in the world of finance and tech. Jokingly referred to as the new ‘wild west’ by many.

Because it’s such early days, it’s impossible to predict which technologies will succeed. And, which cryptos will reign supreme once all the dust settles.

So, whatever percentage of your net worth you decide to put into crypto, you should consider picking a few to invest in.

Don’t just lump all your cash into one project. If you’re dead set on doing that, make sure it’s a big name token such as Bitcoin or Ether.

Doing this can minimise your risk and make sure you haven’t got all your eggs in one basket.

Selecting a few cryptocurrencies to back also increases the chance you’ll pick out winning assets, making you more profit.

keyboard with gold cryptocurrency coins on top


How can you increase your chances of creating a profitable crypto portfolio?

One of the best ways to do this is to invest into competing projects or various cryptocurrencies that have different goals.

In a similar way that you can buy stocks and shares from across different industries and sectors, the same is possible with crypto.

For example…

  • There’s Bitcoin (BTC), which is becoming a store of value and ‘digital gold’.
  • Then, you have projects like Ethereum (ETH), a decentralised network that nobody controls, allowing people to build things within it. Like a piece of software.
  • There are also cryptos dedicated to the metaverse, and others focus on online gaming, music, sports, even memes!

The crypto industry is like a giant sweet shop with various flavours catering to different tastebuds.

It’s also worth understanding that although cryptocurrencies can be a high-risk investment, there are still levels. Some digital assets are riskier than others.

This is why creating a diversified cryptocurrency portfolio allows you to align your picks with your own personal tolerance for risk.


What is the best crypto portfolio?

This is something we can debate until the cows come home. But, there are some general rules and guidelines for creating the best possible cryptocurrency portfolio:

  1. Put a higher percentage into more established projects
  2. Try and have a basic understanding of any crypto you buy
  3. Avoid fads and pick cryptocurrencies that have real-world promise
  4. Select a range of coins covering different sectors

what might i have in my portfolio?

An example portfolio allocation would look something like this:

  • 50% Bitcoin (BTC) and Ethereum (ETH) – 25% to each, or divided as you see fit.
  • 15% Ethereum competitors – Cardano (ADA), Solana (SOL), Tezos (XTZ), Polkadot (DOT).
  • 15% Decentralised finance – DeFi projects such as Avalanche (AVAX), Aave (AAVE), Uniswap (UNI), Terra (LUNA).
  • 10% Metaverse tokens – The Sandbox (SAND), Decentraland (MANA), Axie Infinity (AXS).
  • 5% Platform utility coins – FTX (FTT), Binance (BNB), Crypto.com (CRO).
  • 5% Fun coins or smaller/risky projects – Dogecoin (DOGE), IOTA (MIOTA), Chainlink (LINK), Polygon (MATIC).

Although it’s worth diversifying, you don’t want to spread your funds too thin. Especially, if you’re starting out small.

To begin with, it can be a good idea to build your Bitcoin and Ethereum holdings. And then, start branching out. But, investing a couple of quid into coins isn’t likely to lead to enormous profit – those days are over.

Ideally, holding around 5-10 cryptos can be both diverse and manageable.

electronic chart showing cryptocurrency portfolio


What steps can you take to stay diversified?

You might find that during certain periods, some of your cryptocurrency holdings will outperform others.

When this happens, you might want to consider rebalancing things to make sure you stick to your original asset allocation.

Rebalancing means selling an asset that’s gone up in value. Then, buying another of your holdings to make sure all your percentages stay the same as when you began.

But, crypto prices can swing wildly and you’d get whiplash trying to do this on a regular basis. Instead, check in and do something like this once or twice a year.


Can you still lose money?

Yes. Creating a diversified cryptocurrency portfolio is an excellent way to manage and even reduce your risk. But, there’s still no guarantees you’ll make a profit.

That being said, if you’re looking for high returns with an investment, taking on a certain degree of risk is unavoidable.

You can lose money with any kind of investment, not just with crypto.

sad man who has lost money with cryptocurrency portfolio


How can you track your cryptocurrency portfolio?

You may find that investing in different digital assets involves using a few different platforms.

This is because not every cryptocurrency platform will allow you to access all the coins you want to hold in your portfolio.

One good app worth checking out is FTX.

You don’t have to buy your cryptocurrency there. But, it allows you to enter in all your various holdings, showing you the total portfolio balance clear and simple – along with how each crypto is performing.


What else do cryptocurrency investors need to know?

If you want to buy and track your cryptos in one place, it’s worth considering a multi-asset platform like eToro that lets you invest in digital tokens along with stocks, shares, and other investments.

Make sure that you’re not investing more than you can afford to lose. Try and use a diversified cryptocurrency portfolio as part of a wider, healthy-looking investment plan.

Also, if you want to stay up to date with the latest investing and crypto news, make sure you sign up to our fortnightly Investing Newsletter here.

This is not financial or investment advice. Remember to do your own research and speak to a professional advisor before parting with any money.

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Jasmine Birtles

Your money-making expert. Financial journalist, TV and radio personality.

Jasmine Birtles

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