Essential Steps to Building a Sustainable Crypto Portfolio

The world of cryptocurrency might seem extremely attractive to those looking to escape the constraints of more traditional forms of investment. The major coins have fundamental properties, like scarcity and fungibility, built into them – and these qualities, along with attention-grabbing swings in the trading price, can make them interesting.

If you’re going to successfully trade in these assets, however, you’ll need to think about how you’re going to manage volatility, and ensure that you earn a sustainable return over not just weeks and months, but years and decades.

So, how might you build a portfolio that does this?

Prioritise Dollar-Cost Averaging (DCA) Over Timing the Market

Even experienced investors can lose out when they try to time the market. After all, timing properly means knowing that a given asset is undervalued, or overvalued, in the opinion of a critical mass of traders who are simultaneously making the same calculation.

Dollar-cost averaging is a way of spreading an investment over a longer period, and thereby smoothing out fluctuations in the market. That way, you won’t need to worry about getting the best possible price – by buying a small quantity at the same time every day, regardless of the price, your costs will tend to average out.

This can be a technical advantage, as well as an emotional one. You’ll no longer spend your time worrying about whether a sudden swing is about to wipe out your gains – or whether you’ve missed out on a big opportunity.

Base Decisions on Fundamental Knowledge, Not Hype

The hype surrounding Bitcoin and other major cryptocurrencies can be considerable. Many investors are simply throwing money at these coins because of something that they’ve read in a newspaper, or heard at a dinner party.

Even if you have some experience with crypto, you might be vulnerable to hype. In fact, you might be more vulnerable than a complete newcomer, as you won’t fully understand how much you don’t know.

Before making an investment, you’ll want to have read the project’s whitepaper, and understand the problem that is being addressed. You’ll also need to consider the credentials and reputation of the team itself. This is where a good knowledge of fundamental concepts and principles can be crucial. Look at basic stock trading education, and then zoom in on the resources that are applicable to crypto.

Define and Adhere to Your Portfolio Allocation

It can be tempting to make investment decisions on the fly, based on little more than gut instinct. But this can be a path toward ruin, since not all of your instincts will be sensible. Don’t consider crypto as a whole as a single asset class. Instead, divide your total net worth into buckets, and divide your crypto bucket into different pots. You might invest a given portion in established, low-risk coins like Bitcoin and Ethereum, and then another portion in lesser-known, emerging projects.

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