It’s often said that there’s no such thing as a risk-free investment, but it’s fair to surmise that some are considerably safer than others. For example, Bitcoin trading would be considered as a relatively high-risk vehicle, thanks to the volatile nature of the underlying asset and the lack of leverage surrounding cryptocurrency as a whole.
To understand this further, you need only look at Bitcoin’s historic price run in 2017, as the value of this token increased from $900 to $20,000 between January and December. However, it lost almost 80% of its value during the first six months of this year, before rebounding slightly over the course of the last week or so.
So while there’s money to be made from Bitcoin’s incredible peaks, its troughs can also bring huge and occasionally devastating losses. Fortunately, it’s possible for investors to leverage cryptocurrency and the blockchain technology that underpins this without focusing solely on Bitcoin, minimizing their risk considerably in the process.
Diversifying your Crypto Portfolio
One of the best ways to profit from cryptocurrency while minimizing your risk is to diversify your portfolio. There’s certainly a wide range of tokens available in the current market, with a total of 1,658 cryptocurrencies listed as recently as March.
The total market capitalization for cryptocurrency is $369 billion, and while the top 20 tokens account for a hefty 89% of the marketplace there’s ample opportunity to spread your investment across a range of high value coins.
The key is to identify each individual token’s risk level, before creating a balanced portfolio that includes a comprehensive range of options. Low risk assets such as stablecoins should account for at least 50% of your portfolio, as these tokens are price stable and pegged to a fiat currency such as the USD. In some instances, a stablecoin may even be pegged to a basket of currencies, minimising the range in which values can rise and fall regardless of the prevailing market conditions.
You can then add a smaller number of medium and higher risk tokens such as Bitcoin into the mix, boosting your short-term gains without compromising the foundations of your portfolio.
What About Investing in Blockchain?
If you decide that even low risk cryptocurrency assets are not for you, there’s still a number of ways in which you can invest in blockchain. While this decentralized ledger technology remains synonymous with cryptocurrency, it has the potential to revolutionize a number of different industries and accepted business processes.
Given this, and with a number of businesses having already leveraged blockchain to overhaul their accounting and supply chain procedures, it may be worth investing in publicly traded blockchain ETFs. These funds track variable baskets of prominent businesses that are utilizing or developing blockchain technology, and typically include market leading banks and financial service firms.
You may also find blue-chip stocks such as Taiwan Semiconductor included in blockchain ETFs, along with cutting edge hardware companies such as Nvidia and AMD. A wide range of software developers and ecommerce giants like Overstock are also featured regularly, creating diverse and profitable funds that cover an array of marketplaces.
Not only do the vast majority of these firms have nothing to do with Bitcoin (most leading banks are suspicious of cryptocurrency despite the immense potential of blockchain), but these funds also offer in-built diversity to traders who are looking to spread their investment successfully.
The risk associated with blockchain ETFs is therefore low, making them an ideal vehicle for people who want to capitalize on the growth of blockchain without experiencing the volatile price movements of cryptocurrencies like Bitcoin.
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