Investing in cryptocurrency allows everyone to create an additional form of income that doesn’t need to be monitored through banks or other financial institutions. Indeed, crypto is taxable in some areas, so you’ll have to fill in the taxing documents depending on how much you make from mining or trading.

Regardless, you must choose an array of cryptocurrencies besides the Bitcoin price USD prediction and Ethereum to build up your portfolio to maximize profits and minimize risks. Here’s how to do it.

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Why diversify your portfolio?

Portfolio diversification implies investing in several assets to increase one’s chances of success. Many prefer this method because it helps mitigate risks. 

Broaden your interest in proper diversification

If you want your portfolio to be successfully diversified and substantial, you must think outside the box and seek multiple alternatives to the regular cryptocurrency. The industry provides diverse assets and projects, and you can take advantage of them with the right mindset.

Hence, you can start by researching crypto with various use cases. Ethereum offers unique blockchain tools for developers, creating a world of assets like NFTs, DeFi, and other valuable ecosystems. Tether has been used to reduce crypto volatility, while Ripple offers rapid money transfers.

Investing by sector

One of the best ways to multiply your income is to become interested in sectors and industries where crypto performs the best. For instance, the Artificial Intelligence sector has been on the rise in the past year, and it continues to be an area of interest for investors outside the crypto ecosystem.

Layer-2 networks improved considerably in the past years as a way to help blockchains develop, but even the Layer-3 solutions, which are more advanced, can pose significant benefits for your portfolio. But you can also follow the crowd and invest in meme coins, at least when they’re on strike, because the hype lasts shortly, but the rewards are considerable.

Having stablecoins in your portfolio is also necessary because a fiat currency, such as the US 

dollar, back them. Tether, for instance, is pegged to it based on reserves, and it can operate on multiple blockchains. Others are backed by cryptocurrencies, such as DAI, the token used in the MakerDAO market.

Geographical diversification

Although crypto can be used and transferred almost globally, except in a few areas, doing so isn’t similar everywhere. The crypto market is mainly regulated and leveraged in the US, where many new projects are created frequently. Still, Europe and Asia are also prominent interest areas where investors are yielding consistent results from Bitcoin or other coins.

Indeed, it’s best to avoid banned or limited projects because you expose yourself to certain risks. For instance, some areas in Africa and China have banned any crypto-related activity. Contrarily, other places encourage people to use crypto by providing the proper infrastructure and laws for it. Portugal is one of those countries where crypto has flourished, and taxes are low.

Timing diversification

Timing is one of the most important factors to consider when investing in crypto. That’s why bull runs, bear markets and day trading are on everyone’s lips, because their impact can be felt in specific periods. Upon the development of a bear market, prices start to lower, and performance is slow, meaning it’s time to stabilize the portfolio and avoid selling all the assets. On the other hand, in day trading, you must enter and exit the market on the same day to lower the chances of risking your portfolio and maximize returns.

Diversification by asset class

Numerous asset classes in crypto include unique projects. For instance, NFTs were pretty popular around 2021, when they were used as real estate methods of acquiring land. NFTs are great because they offer full ownership of the asset once you get it, and they’re great assets to have, considering how volatile these projects are.

Bottom line

Portfolio diversification is needed for every investor who wants to build a stable future. It implies you invest in various tokens and cryptocurrencies with different features and use cases to minimize risk. It requires thorough research because not all projects have the potential to stabilize your assets, so you must find the balance between your goals and the market’s volatility.