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How to Diversify When Holding Too Much Cryptocurrency?
How much crypto is too much crypto? Is it a good idea to diversify your holdings to ride the market swings? It depends on the type of investors you’re asking. If you ask Warren Buffet about diversification, he will say that diversification is protection against ignorance. Essentially, he means that if you know what you’re doing, you won’t need to diversify your holdings. That is not to say that you don’t want to hold multiple investments at a time, it’s just to say that you need to be intentional, and confident with your investments. If you ask a Bitcoin Maximalist about diversification, they’ll tell you that there is no point. They have a Warren Buffet attitude about their holdings in bitcoin. But if you have your sights set on other investments, how exactly would you go about diversifying your holdings?
Exit into Real World Assets
If you want to move your cryptocurrency holdings into something a little more concrete and made of matter then you’re going to need an exit strategy. Selling cryptocurrency for government money can be a very involved process, and remember, there are tax implications for every crypto transaction you make. There are essentially two things you need to be aware of when selling cryptocurrency.
- What exchange am I going to use to sell into FIAT
- What bank am I going to have my funds deposited into
These are more complicated questions than they appear. It is imperative that you ensure that both the exchange you use and the bank are quality institutions. Otherwise, all of your hard earned capital gains will be for naught. Furthermore, at this point, every penny counts. You want to make sure that the exchange you choose has reasonable fees, and timely withdrawals. The most important factor to consider when choosing a banking institution is the amount of trust you have in the institution. At the end of the day, you do not want your bank account shut down because of your affiliation with a cryptocurrency exchange.
Diversify Your Cryptocurrency
If we are simply talking about the diversification of your assets that are already within the cryptosphere, then this is a much simpler proposition. Moving cryptocurrency around the crypto ecosystem is extremely simple if you know what you’re doing. The hard part is knowing what to diversify your assets into. Again, this has more to do with your investment goals and temperament than knowing how to do it. Simply by moving some bitcoin onto an exchange like Binance, you can gain access to all of the hot crypto assets of the day. Binance has more than 100 different cryptocurrencies that can be bought or sold on the platform. That makes it an ideal exchange if your goal is diversification.
Knowing What to Pick
It is helpful to acknowledge that some cryptocurrencies are inherently different from others. There are features of cryptocurrency that bitcoin has not implemented. You therefore need to ask yourself whether or not you think this feature has any utility in the world. Will these additional features be useful enough to people to justify the existence of a completely other token? If the answer is yes, then it is worth taking a look at some projects that are doing things differently than bitcoin.
Privacy Coins
For example, Bitcoin is only pseudo-anonymous, and so a coin like Monero, offers a utility that Bitcoin does not. It is for this reason that you may want to have Monero in your portfolio, as it fills a gap in your portfolio. If you believe that there is a need for coins that elevate privacy above all else, then simply holding bitcoin will not satisfy your belief. You will need to acquire Monero, Dash or zCash in order to profit from the rise of privacy oriented coins.
Platform Tokens
We can apply this same principle to other domains in the cryptocurrency realm. Bitcoin does not have the capability to (easily) host other tokens on its network. At the moment, Ethereum is the most popular token hosting platform in the world. So Ethereum does something that bitcoin does not, and therefore, should be considered if you think that token platforms are the way of the future. A broader conceptualization of what Ethereum is, is a foundational layer for decentralized finance. There are a number of other platforms that are claiming to do the same thing as Ethereum. These platforms are Cardano, EOS, and Tron, just to name a few.
Utility Tokens
Last but not least, you may want to consider picking up a utility token. There are a couple of different flavours of utility tokens that may appease your tastes in investments. Utility tokens are cryptocurrencies that are typically confined to a single use case within a platform created by a company. The easiest utility tokens to point to are Crypto.com Coin (CRO) and Binance Coin (BNB). These tokens are only valuable if the underlying companies remain in operation. That being said, they are both extremely valuable tokens to hold, as these exchange themselves, add a lot of value to the world of cryptocurrency. These exchange tokens allow you to participate, and share in the success of the company through a range of incentives and programs.
Leave Crypto Behind
For some, investing in cryptocurrency is a stopover on the path to riches. Get in, get out, and you are done. After all, there is nothing backing the value of these cryptocurrencies. They are purely speculative investment vehicles with no inherent value. So if you are holding too much cryptocurrency, it might be time to start looking at land, or real estate. These real world investments are something you can visit, and hold. If you still want to ride out the storm of the ensuing economic crisis, you can even pick yourself up some chunks of gold. Scarce assets will always have some sort of speculative value built into them. The point is, there are tons of ways to diversify your portfolio, inside and outside of cryptocurrency. When you’re a bitcoin maximalist the question is not what else to invest in. It is why would I ever want to invest in anything but Bitcoin?
