You may have an excellent portfolio if you’ve gone further than dipping your toes into the ocean of the cryptocurrency market. Congratulations, you’re on your way to creating wealth! But now you need to think about asset management.
For the uninitiated, a crypto portfolio is all your assets in your exchange or crypto wallet (where you store your assets and passwords).
And once you have a portfolio, managing it means going through those assets and making adjustments so that everything aligns with your investment goals instead of being all over the place.
This article from Pluto will detail how to accomplish successful crypto portfolio management.
Why Is Crypto Portfolio Management Important?
There are a variety of benefits. For one, the tools used in cryptocurrency portfolio management will help investors see how successful they have been in their trading efforts. This includes gains and losses.
And let’s not forget about taxes. Most countries require investors to report their trading activity within that year. Having all your data run through a portfolio tracker can make this easier to organize.
Finally, we need to talk about emotions. This is because emotional reactions can knock investment decisions in the wrong direction. Feelings like fear, elation, and greed have their ways of displacing logic. If you successfully manage your cryptocurrency portfolio and understand your research-backed strategy, you can keep calm when you hit turbulence in the market.
What Are the Key Goals of Crypto Portfolio Management?
Keep these four goals in mind when preparing for cryptocurrency portfolio management: balance, diversification, minimizing capital loss, and tracking investments. We will go through each of those in more detail.
You want a well-balanced portfolio. This means it contains numerous types of cryptocurrency, each having different market caps, use cases, and market sectors. Let’s go over these terms in case you are unfamiliar with them:
- Market cap is a crypto’s current price x circulating supply. For example, it will likely become more valuable if the supply is scarce.
- The term “use cases” refers to how that particular cryptocurrency is used. Examples include online payments, banking activities (like lending), and storing and transferring value.
- A market sector refers to a cluster of organizations that sell or create products that are similar enough to each other that they compete with one another.
Ensure you set aside a certain amount of funds for each asset in your cryptocurrency portfolio. And if you invest in new currencies, sell off other assets to ensure everything remains balanced.
For example, you wouldn’t want to overindulge in bitcoin and have a vastly smaller amount of another type of coin.
A diverse portfolio is different than a well-balanced one. This one is about risk.
Specifically, diversification refers to distributing risk across multiple assets. The overall cryptocurrency market is volatile, meaning prices skyrocket and crater quickly. If you don’t have all your eggs in one basket, you’re not as likely to be hit as hard by that volatility.
Minimize Capital Loss
Cohesively organizing everything can help identify your risk tolerance and hone your strategy, so you can work more strategically, ultimately reducing how many assets you’re losing.
Many investors have their capital all over the place: different wallets and exchanges. It can all get very confusing. A well-managed portfolio tracks investments so everything is organized and you fully understand what’s working and what’s not.
What Are Some Strategies for Crypto Portfolio Management?
Now that we’ve established goals, it’s essential to look at a few strategies when it comes to asset management. This is not an exhaustive list, but it should guide you to think in the right direction.
1. Dollar-Cost Averaging
This refers to procuring small amounts of different currencies at specific intervals (say twice a month). With this strategy, the price of the asset doesn’t matter. Just buy a little at regular intervals.
The benefit here is that you won’t be scared off by the volatile market if the price of one asset suddenly plummets.
2. Using Crypto Portfolio Trackers
A crypto portfolio tracker is a digital tool (like a website or an app) that helps you keep track of the value of your currencies.
Remember, it’s a volatile market, and things go up and down fast, so it’s best to be constantly in the know of what’s going on with your portfolio. These trackers can make that job easy.
For example, CoinMarketCap has a free one you can look at. Others worth a gander include the trackers available from CoinStats and CoinTracker. Make sure to do your homework when considering appropriate asset management.
3. Develop an Exit Strategy
As the Boy Scouts say, “Be Prepared.” And that goes double for the cryptocurrency market. Sometimes things go belly-up with different assets, so you want to know how much you’re willing to part with in the end. Set a limit. Creating an exit strategy will help you ultimately limit how much you lose if your strategy doesn’t work out as you’d hoped.
How Can You Choose the Right Crypto Portfolio Tracker?
If you saw the information about crypto portfolio trackers and are interested in learning more, be sure to ask the following questions before committing to any particular one:
Which Coins and Exchanges Are Available?
Not all trackers work with all currencies and exchanges. For example, CoinTracking works with 8,000 cryptocurrencies from over 300 different exchanges.
Take a look at your assets and investment goals. What coins are most important to you? What exchanges do you want to work with? What coins and exchanges might be most attractive to you in the future? You should at least consider these questions.
How Are the Safety Features?
It’s a sad but true statement that hacking is a dark reality in cryptocurrency. When you use a crypto portfolio tracker, it’s likely to link with your bank account and exchange.
For this reason, you need to ensure your tracker's security is airtight. Ask a representative from the company you’re considering about their safety features.
Is the Interface User-Friendly?
A crypto portfolio tracker is meant to make things easier for you. That means less stress. But if you need help understanding how to work it, this can leads to errors and frustration. Of course, that’s the last thing you want. Make sure the interface is user-friendly.
Which Is Better: Passive or Active Portfolio Management?
Passive portfolio management hits “copy and paste” when it comes to the investment holdings of a specific index. (A cryptocurrency index fund is a tool used to invest in a mixture of different coins.
Different investors pool their money into the fund.) This passive strategy aims to reach similar results to the index you’ve decided to copy.
This differs from active portfolio management, where you try to buy and sell stocks to surpass a particular index. So instead of copying them and wanting something similar, you want to try and do even better.
So, which is better? Well, the answer (like many times in life) is “it depends.”
Active management works better in certain circumstances, but at other times passive is the route.
For example, active strategies achieve better results when the economy isn’t doing well, and the market is particularly volatile. And when the opposite is accurate and things are calm, passive strategies will often outperform active ones.
The Bottom Line
Keeping your assets organized with a specific strategy in mind is always essential. This will help you fare much better than if you haphazardly have different investments in different exchanges all over the place as if thrown about in a messy room.
Look into procuring a crypto portfolio tracker that will work with the coins and exchanges you’ve targeted — and one that’s user-friendly to boot!
Pluto is an investing app that helps you automate investing in stocks and cryptocurrencies by building a portfolio of "strategies" or rules for when to buy and sell.
With us, you can quickly build a portfolio of strategies to watch your investments and make better decisions with your own rules like “if bitcoin (BTC) dips below $20k, then buy.”
If you enjoyed this blog entry, please be sure to give our full blog a look, as we cover a wide variety of topics that can arm you with the necessary knowledge to grow as a cryptocurrency investor.