Crypto has become widely popular worldwide, as many people learn about its benefits on the financial ecosystem. News titles about successful crypto stories draw more and more people to the market in the hope of making a passive income and achieving financial freedom. However, as soon as they enter the crypto space, investors find out that things aren’t as bright as they seem from the outside. The market is volatile, and while there may be a lot of opportunities, there are also scary price dips. And the rule to buy low and sell high is not enough for proper crypto portfolio management. Truth be told, no one in the world likes losing their cash. While you may experience some losses in your investment journey, it is possible to mitigate risk and increase your gains. Here is a no-nonsense guide to managing your crypto portfolio efficiently.

What is crypto portfolio management all about?

Put simply, managing your crypto portfolio is about reviewing your digital assets continuously and updating them based on your investment goals. Different techniques have the same purpose: to help you maximize profits as much as possible and reduce losses. There isn’t a one size fits all strategy that will be suitable for every crypto portfolio. However, many crypto investors use apps which help them collect data about their assets’ performance and adjust their portfolios accordingly. There are two styles of portfolio management: active and passive. The former is riskier because it relies on techniques like short selling and leverage trading. Plus, traders must keep an eye on their holdings at all times, as this management style is about monitoring shorter timeframes. On the other hand, passive portfolio management involves a long-term investment approach. Since investors don’t enter the market only to exit it as quickly as possible, they employ strategies that include buying and holding their preferred cryptos, which allows them to put less money into their investments.

What are the benefits of managing your crypto portfolio?

We know that managing a crypto portfolio isn’t at all exciting, but it is a necessary step you must take in order to survive the market’s volatility. Here are the most common benefits of managing your portfolio:

• It provides insight into your losses and gains;
• It helps control your emotions better;
• It offers a clear picture of your trading performance;
• It facilitates the process of filing annual taxes.

In episode 710 of the Money Girl podcast, Laura Adams covers six ways to invest in crypto, including some clever, tax-advantaged options for avoiding capital gains taxes. You’ll learn what cryptocurrency is, how to buy it, how it gets taxed, and a strategy to start stacking coins.

Best practices for crypto portfolio management

Develop an investment thesis

Before you build your portfolio, you should educate yourself on the crypto industry and figure out what projects most appeal to you. You want to develop an investment thesis that includes details like how much you’re willing to invest in crypto, what coins you’re most interested in, and your expectations regarding profit. Also, you should get clear about your goals for investing in crypto.  

Diversify your assets

Your crypto portfolio comprises all the assets you own, such as ETH, USDT and Bitcoin, and their value is based on the current market price of your cryptos. Suppose you are new to the crypto space and want to buy bitcoin; it’s vital to choose an exchange platform like Binance that allows you to diversify your portfolio over time. Diversification is crucial to succeeding in a market prone to significant ups and downs. The more assets you include in your portfolio, the higher your chance of mitigating risk.

Rebalance your portfolio

Rebalancing means buying and selling portions of your portfolio to readjust your asset allocations. Suppose you want your crypto portfolio to consist of 25% ETH, 50% BTC, and 25% altcoins. In that case, if the small-cap altcoins increase and take more than 35% of your portfolio, the goal of rebalancing is to achieve more exposure to BTC and ETH. To do that, you must sell a portion of your altcoins.

Use a portfolio tracker

A portfolio tracker is an efficient tool that allows you to monitor the performance of your investments and gain insight into:

• Gains and losses;
• Your portfolio balance;
• Holdings;
• How your investments align with your goals.

With an automated portfolio tracker, it will be easier to manage your budget, and you’ll make better investing decisions and become confident about achieving your financial goals.

Plan an exit strategy

In life, everything is temporary, and good things may come to an end at some point. Because the crypto market is volatile, you must be prepared for a bear market. The price of an asset could fall unexpectedly, and it’s imperative to figure out early how much you afford to lose. Developing an exit plan in advance is an efficient portfolio management strategy and will help minimize losses if things don’t work out in your favor. More often than not, investors overlook this step and end up holding their position for a long time, even if that may lead to losses. But these situations can affect your crypto portfolio and your investment strategies. Thus, to be a successful investor, it’s essential to plan your exit strategy before entering the crypto space.

Avoid emotional trading

Humans often allow their emotions to take control of their actions, and this is especially true when it comes to crypto. But greed and fear can lead to major losses, so investors must learn how to keep their emotions at bay. FOMO is common in the crypto industry, leading to hasty investments and investors falling victim to scams. Peer pressure can also be the reason why you may end up investing in a coin that won’t bring you any profit at all. Thus, it’s essential to do your own research and avoid investing in a crypto only because of the hype around it. Your emotions shouldn’t get in the way of achieving your long-term investing goals, so make sure to consider this tip when managing your portfolio.

Key takeaway

Crypto portfolio management isn’t as complicated as it may initially seem. But you must develop a plan and determine how much you’re willing to invest in a specific asset. Diversifying your portfolio is crucial because it ensures long-term growth. Additionally, crypto portfolio trackers can help you monitor the volume, price, and market cap of your tokens. Don’t trade based on your emotions, and develop a plan that will help you stay on the right track during your investment journey.  

Feeling bitcoin or cryptocurrency FOMO right now? Laura, from the Money Girl podcast, interviews Fred Schebesta, author and founder of Finder.com about the future of cryptocurrency and what bitcoin beginners should know. Find out how to slowly add crypto to your investment portfolio, keep it safe, earn higher returns, and where to learn more.