How to Build a Diversified Crypto Portfolio

Mar 29, 2023
How to build a diversified crypto portfolio

We all know the phrase “don’t keep all your eggs in one basket.” But what does that mean exactly? Better yet, how does one put that advice into action? The following covers all the basics of how to build a diversified crypto portfolio - including some recommendations on what to buy. 

What is a diversified crypto portfolio?

“You can only know so many companies. If you’re managing 50 or 100 positions, the chances that you can add value are much, much lower” - Lou Simpson.

A diversified crypto portfolio is a result of investing in multiple cryptocurrencies rather than just one or a few. This approach helps to reduce risk and increase the chances of achieving long-term gains. A diverse portfolio can include a range of cryptocurrencies, such as Bitcoin, Ethereum, Litecoin, and others, as well as different types of tokens, such as utility tokens, security tokens, and stablecoins.

Investing in only one or a few cryptocurrencies is risky, as the value of these assets can be volatile and subject to sudden price fluctuations. 

Diversification helps to mitigate this risk by spreading investments across multiple assets. Additionally, diversification can help to take advantage of different market trends and growth opportunities.

Pros and Cons of Building a Diversified Portfolio 

There are several advantages and disadvantages that any investor should face while diversifying their portfolios. Consider the benefits and drawbacks of a diverse portfolio below:


A diversified portfolio provides balance

With a diversified portfolio, you are less likely to be impacted by the volatile fluctuations of any one asset. It is safer since you still have other assets in your portfolio that could perform well and help offset any losses if the value of one item declines.

A diversified crypto portfolio provides more chances

Cryptocurrency is a popular investment due to its long-term value. Given the current market conditions, crypto provides numerous investment opportunities. There are many choices of coins and each currency has its objectives that can help to unlock opportunities in the market. 


A diversified portfolio requires more time and effort 

Separating your assets requires more time and effort. Investors need to conduct market research, analyze market trends, and monitor their assets in different portfolios regularly. More adjustments are needed in a diversified portfolio, however, more effort equals more security.

A diversified portfolio limits the potential for significant gains

Separating your investment in different places may limit your chances to gain a maximum profit in one asset. However, there is no certainty of this since cryptocurrency is very volatile. Therefore, there is no guarantee that you can earn so much without losing any money by just investing in a single cryptocurrency. 

The decision to build a diversified crypto portfolio is a personal preference. This preference depends on an investor’s goals, risk tolerance, and overall investment strategy. 

Diversification can provide several benefits and minimize the risk. However, it also requires extra time, and frequent monitoring, and may limit potential returns. Investors can make better-informed decisions that align with their goals and risk tolerance by understanding and weighing the pros and cons of a diversified crypto portfolio.

Five Simple Methods to Build your Own Diversified Portfolio

Diversifying your crypto portfolio is challenging if you are new to investing. However, worry not! Check out these five easy steps to diversify your portfolio in detail:

1. Research and analysis

You can start by learning about various cryptocurrencies' distinctive features. This includes the team, their background, the market demand and the roadmap. This will help you choose wisely when making investments.

2. Assess your risk tolerance

Understanding your risk tolerance will help you to define your level of comfort with risks while investing before you expand your portfolio. You must ask yourself how much you can afford to lose if your investments don't perform properly.

3. Choose your risk tolerance

After assessing your risk tolerance, it’s time to choose cryptocurrencies that match that level. Invest in cryptocurrencies with varying market capitalizations, use cases, and technology. It's important to have a balance of well-known cryptocurrencies - like Bitcoin and Ethereum - and exciting new ventures. Choosing the preferred risk tolerance also helps to make sure that you invest in the asset that aligns with your financial objectives.

4. Allocate

At this stage, it’s time to allocate your funds. Hopefully, your research has helped with this. While choosing an allocation, remember elements including market volatility, past performance, and the present state of the market.

5. Observe, analyze and adjust

Maintain the desired allocation by monitoring and rebalancing your portfolio regularly. See what investments are working and which ones are not. This requires additional research. This strategy guarantees that you transfer profits from high-performing assets to low-performers, keeping the ideal balance of your portfolio.

How to start a diversified crypto portfolio

Diversifying a crypto portfolio involves investing in different cryptocurrencies to spread out risk and increase the chances of higher returns. In general, there are many options to pick the specific mix and best portfolio strategy. Here are some of the best types of cryptocurrencies for starting a diversified portfolio for beginners.

  1. Bitcoin (BTC): Bitcoin is the most well-known and popular option for investors and businesses around the globe. Since the adoption of Bitcoin in various countries and more regulations are being developed around the globe, Bitcoin has been entering a more mainstream market and accepted for business casual purposes such as forms of payments or global money transfers. If you are the one that is looking for alternatives to traditional currencies, Bitcoin can be an option to grow and hedge your overall assets.

  2. Ethereum (ETH): Ethereum is largely known for its smart contract and decentralized applications. Individuals and investors are interested in Ethereum for its flexibility and ability to execute smart contracts. Developers that are creating decentralized finance applications and NFTs also prefer to use Ethereum as the infrastructure. If you are a type of investor that values flexibility and is interested in smart contracts, Ethereum is the right starting point to explore more.

  3. Cardano (ADA): A popular cryptocurrency known for its innovative proof-of-stake consensus mechanism, designed to be a scalable and secure platform for running smart contracts and decentralized applications. Its focus on security and scalability has made it a popular choice for developers, and its native cryptocurrency, ADA, has seen significant price appreciation.

  4. Binance Coin (BNB): Also known as Binance exchange, BNB has become one of the go-to choices for traders due to its high liquidity and rare ability in the market. What they offered made them a very competitive digital coin not to mention that it became famous not long after it was launched because they allowed the users to have discounted fees on the Binance exchange and other advantages.

  5. Polkadot (DOT): Polkadot is considered a new cryptocurrency. However, it succeeded in gaining attention for its unique approach to blockchain which gives them the ability to control a huge amount of data. They are also known for its blockchain network innovation that is designed to connect users effortlessly. Furthermore, the network is used for government administration, data stacking, and payment worldwide. 

Of course, these are just a few examples. The world of crypto is vast and evergrowing. YouHodler has over 60 cryptocurrencies to choose from, all with unique benefits. 

Take the time to research each one and see what cryptos match your risk tolerance and investment style. 


In short, you can make the right decisions that are in line with your investment objectives and risk tolerance by taking the time to learn about the details of each coin, its concepts, its futuristic innovations, etc. Once you master it, you will be able to comprehend the possible risks and rewards of investing in cryptocurrencies. Please note that there is uncertainty and many factors that could affect the digital currency market, diversification can assist to reduce these risks and pave the way for possible success.

Disclaimer: “The content should not be construed as investment advice and does not constitute an offer or solicitation to offer or recommendation of any investment product. It is made available to you for information and/or education purposes only.

You should take independent investment advice from a professional in connection with, or independently research and verify any information that you find in the article and wish to rely upon.”

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