Cryptocurrencies are one of the most exciting areas to invest in right now. The profits are huge, and that can be very enticing to new and experienced investors alike. Of course, with big profits come big risks, which is why savvy cryptocurrency investors will want to think about how to diversify their cryptocurrency investments (and their investment portfolio in general) in order to protect themselves while seeking big wins in the cryptocurrency markets.
What cryptocurrencies are and why they’re growing so fast
Cryptocurrencies are a form of digital money. They appeal to people who value privacy and to investors who recognize that the marriage of the internet and finance will only grow stronger in the future. It’s no surprise that cryptocurrencies are growing fast: they seem likely to play a major role in the finances of the future, and they’ve only just come into being.
The arrival of blockchain technology is what made modern digital currencies possible. The blockchain allows extremely secure record-keeping that shields data from hackers who were a huge problem for older digital currencies. Cryptocurrencies are safely encrypted because they use blockchain technology to record transactions.
Secure cryptocurrencies are a new idea and they’re growing very fast. But, in the world of investing, fast growth usually means higher risks.
Cryptocurrency and risk
Cryptocurrencies offer investors and speculators the chance to make a fortune. Experts make careful decisions about when to buy and sell currencies like Bitcoin and XRP, hoping to score big profits.
But cryptocurrencies can drop in value, too, of course. Individual cryptocurrencies have had occasional dramatic plunges to go along with their impressive growth. For buy-and-hold investors, such dips might not be a big deal; for others, they could represent a major problem. But risks are everywhere in investing, of course. They’re present in stock and bond markets, too. And, just as in those other markets, cryptocurrency investors should use strategies to reduce their risk.
Diversify your cryptocurrency investments
If you have nothing but Bitcoin in your cryptocurrency wallet, then you’ll be in a pretty bad mood when Bitcoin drops. That’s why diversity is the key to overcoming risk in the cryptocurrency market.
When you own more than one cryptocurrency, a drop in the price of one currency won’t hurt you as much. What’s more, some cryptocurrencies may sometimes rise as others fall, meaning a diverse portfolio can negate — and perhaps even profit from — a drop in one of the individual cryptocurrency markets.
Investing in multiple cryptocurrencies is as simple as buying multiple types of cryptocurrency to store in your cryptocurrency wallet. Rely on news and ticker websites that show you not just the price of bitcoin, but the XRP price, Litecoin price, and other key cryptocurrency metrics, as well. Read the news and keep your eye out for undervalued coins. You don’t necessarily want to go all-in on a smaller cryptocurrency, but you do want diversity that goes beyond giants like Bitcoin.
Of course, you should also diversify your investments beyond the cryptocurrency world. Diversity within a certain space can only get so diverse, after all. A movement in the broader cryptocurrency market could still hurt you, no matter how many individual currencies you’re invested in. A bit of common-sense diversity is all you’ll need, though; there’s no reason to avoid the cryptocurrency market as a whole.
If you believe in the future of the cryptocurrency market as a whole, as many do, you should express that faith with safe and diverse cryptocurrency investments. Doing so will limit your risk while keeping you in a position to grow your wealth as the cryptocurrency market grows.