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How to Invest in Crypto?

June 20, 2023

Many still consider cryptocurrency a high-risk or even senseless investment, and quite reasonably so. Crypto assets, even the most established and well-known ones, are much more volatile than other assets, such as fiat currencies or stocks. Besides, many pseudo-experts online give stupid, dangerous, or straight-up malicious advice to people who do not understand the crypto industry but want to try investing in it, causing losses of funds and great distress.

The unregulated status of crypto in many countries, its complicated nature that is still not well understood by government authorities, and a lack of consensus regarding its pros and cons for economies only add to the risk. Future regulatory changes can significantly affect the prices of cryptocurrencies, both positively and negatively. In the worst-case scenario, cryptocurrency may become illegal and lose its value partially or wholly. Conversely, if more people come to understand the power of blockchain technologies and Web3 in establishing a more accessible and equitable financial system, prices of crypto assets may skyrocket.

If, despite the risks, you are still interested in investing in crypto, conducting thorough research on any digital coin or token is vital before making a purchase. It is also crucial to keep up with the rapid growth of the cryptocurrency industry. With new technologies and projects constantly emerging, you must stay up-to-date on the latest developments to be able to adjust your portfolio accordingly. Therefore, reading crypto-related news, checking with yourself about your investment goals and risk tolerance, and regularly reviewing your entire portfolio is highly recommended.

Crypto Portfolio

Investing in cryptocurrencies can be risky due to their volatility. Therefore, investing only the amount of money you can afford to lose is crucial. If you are a conservative investor, it is recommended to allocate a small portion (1-5%) of your investment portfolio to crypto. It would be best to choose more established and reputable crypto assets, such as Bitcoin and Ethereum. Cryptocurrencies with larger market caps are more stable, whereas those with smaller ones may have strong growth potential. 

To manage risk in your portfolio, consider including stablecoins, as their prices are less volatile. Lastly, you can add a smaller percentage of emerging crypto projects with various use cases. You can adjust your allocation according to your risk tolerance and choose more up-and-coming projects if you feel comfortable taking a risk and supporting the development of the DeFi industry.

Ways to Diversify Your Portfolio

Consider four aspects to successfully diversify your crypto portfolio: blockchain, type of crypto asset, use case, and industry.

Firstly, avoid focusing on one blockchain and try to invest in various chains. For instance, Ethereum is one of the most popular blockchains with a vast ecosystem of networks, DeFi apps, Layer 2 solutions, and supported crypto assets. It provides developers with helpful tools for building dApps and allows projects and companies to create their own tokens following the popular Ethereum standards. Another example, Polkadot, focuses on building a truly decentralized and interoperable Web by creating a united and secure ecosystem of specialized blockchains called parachains. By buying their native coins and thus investing in different blockchains, you get involved in the development of various segments of the crypto industry, which helps diversify your portfolio.

The second piece of advice derives from the first - consider adding various types of crypto assets to your portfolio. The most common type is arguably cryptocurrencies or native coins, such as Bitcoin (BTC), Ether (ETH), Binance Coin (BNB), Cardano (ADA), etc. They are used for maintaining blockchains and paying fees within their ecosystems. The next type is tokens. Tokens have multiple uses beyond holding and exchanging value like cryptocurrencies. For instance, they can provide access to DeFi services, including staking in liquidity pools to earn extra profit or taking loans unavailable for coin holders. In addition, some tokens can provide you with voting rights in issuer projects, enabling you to participate in making decisions about their development.

Other popular crypto assets that quickly became popular during the Covid-19 pandemic are non-fungible tokens (NFTs). They have gained popularity through digital art but can also represent ownership of tangible objects such as art pieces, collectibles, real estate, etc. Even though NFTs are a riskier investment, as their value is somewhat subjective, you may buy some for your portfolio. Lastly, do not forget about stablecoins, such as Tether (USDT) or USD Coin (USDC). Those crypto assets are pegged to the value of other assets, like U.S. dollars or gold, and therefore have consistent prices, which helps stabilize your portfolio and mitigate risks.

Thirdly, try to choose assets with different use cases. For example, Bitcoin is arguably the most popular cryptocurrency in the world and, therefore, can be an excellent choice for preserving wealth. Ethereum, the second most popular crypto, is actively used by thousands of crypto projects and decentralized applications and, consequently, has excellent potential to produce returns for investors. You can also look for utility, security, governance, and other tokens. Utility tokens grant users access to different features and services within specific networks, while security tokens represent shares in crypto projects and allow you to support crypto projects you like. Read more about different types of tokens here.

Lastly, even though decentralized finance (DeFi) is one of the most prominent industries using crypto, other industries can employ crypto-related technologies. For instance, using cryptocurrencies in video games is becoming increasingly popular, with many users trading virtual assets and other collectibles. You may look into such projects to diversify your portfolio even more.

Final Thoughts

Cryptocurrencies remain highly volatile and speculative, strongly influenced by public sentiment and social media trends. Therefore, it is crucial to consider your investment goals and financial situation before investing in crypto to ensure it is a suitable and beneficial option for you.

If you are prepared to embark on your crypto journey and create your first portfolio or need to move different crypto assets between networks or swap them to rebalance your existing portfolio, you can utilize the Kinetex dApp.

With Kinetex, you can effortlessly swap any asset in any network via the Kinetex Aggregation mode that supports more than 5000 tokens and chooses the most favorable rates. Moreover, you can use Kinetex to send crypto assets for withdrawal to fiat if needed or put them in a liquidity pool for extra passive income.

Kinetex Network: Website | Kinetex dApp