What is a crypto portfolio?
In finance, a portfolio refers to assets you currently hold. It includes all the digital assets you own in an exchange account or in a crypto wallet. These could include fungible crypto tokens like Bitcoin (BTC) and NFTs (non-fungible tokens) like metaverse land, CryptoPunks, or NBA Top Shot clips.
Cryptocurrency portfolios may also include stocks, ETFs (exchange-traded funds), or index funds related to the crypto industry. If you were to buy shares in Coinbase or a Bitcoin Futures ETF, for example, you could include these assets in your crypto portfolio. While these investments are available on traditional stock markets, they are correlated with the cryptocurrency market.
It’s also essential to include any passive income you’re receiving in cryptocurrency in your portfolio. If you partake in activities like staking, crypto lending, or liquidity pools, you may earn crypto that affect your portfolio’s total value.
What does it mean to manage a crypto portfolio?
Managing a crypto portfolio means constantly reviewing and updating digital assets to fit your investment goals. There are numerous portfolio management techniques, but they all seek to maximize profits and minimize losses.
No single strategy works for every crypto portfolio, but most crypto investors use apps that track the day-to-day performance of their crypto assets. They can then use this data to analyze the performance of their portfolio and make adjustments to suit their strategy.
Styles of portfolio management: Active vs. passive
The list of portfolio management strategies is endless, but every technique falls within one of two categories: active or passive. Reviewing the differences between these styles will help you better understand portfolio management.
Active portfolio management
An active approach to portfolio management involves constantly adjusting the crypto in your account. This portfolio management style is standard with short-term crypto traders or professional wealth management firms like hedge funds. Active portfolio management also tends to be riskier than a long-term passive investment approach.
The role of an active portfolio manager is to outperform the average returns in the crypto market. To do this, active portfolio managers often use riskier techniques like leverage trading and short selling. It’s also more common for crypto investors who use active methods for technical analysis to inform their short-term trades and take bets in derivatives markets.
Since active portfolio management tends to monitor shorter timeframes, traders must constantly watch their holdings. Crypto investors who take an active approach also tend to use risk management tools like stop-loss, take-profit, and OCO (one-cancels-the-other) orders.
Passive portfolio management
Passive portfolio management isn’t as hands-on as the active approach, but it’s often associated with a longer time horizon. Crypto investors employing a passive investment strategy usually focus on buying and holding their favorite cryptos rather than trying to enter and exit the market quickly.
An example of a passive investment strategy is DCA (dollar-cost averaging). With this approach, investors consistently put a small amount of money into their favorite cryptocurrencies. Rather than trying to choose the best times to buy and sell, DCA investors continue building their position with the expectation that their projects will be more valuable in a few years.
While passive portfolio management still involves tracking trade performance, it’s far less time-sensitive than an active approach. Passive investors tend to avoid using technical analysis, leverage, or monitoring short-term price fluctuations.
Benefits of crypto portfolio management
Managing a portfolio isn’t the most exciting aspect of crypto investing. However, putting these strategies into place can significantly increase the odds of surviving these volatile markets.
Managing a portfolio:
- Paints a clearer picture of your gains and losses: Without portfolio management tools, it would be difficult to know the value of your crypto holdings. A crypto portfolio tracker helps analyze your cost basis and how much your positions have grown (or fallen) since you bought them.
- Helps keep your emotions in check: If you take the time to define your investment thesis, you’ll have an easier time staying calm when the market works against you. Cryptocurrencies are inherently volatile, so having a game plan beforehand can help you capitalize on price corrections and remain steady during bear markets.
- Provides an accurate read on your trading performance: Those who take an active approach to crypto trading can analyze their success rate with portfolio management tools. If you find a trading technique isn’t working out, you’ll have an easier time pinpointing what went wrong and developing new strategies.
- Is essential for filing annual taxes: Tax law in most countries requires crypto investors to report their annual trading activity. The easiest way to compile all this data for an accountant is to run it through a professional crypto portfolio tracker.
Portfolio management basics
There are many ways to customize your crypto portfolio management style, but here are a few central themes to keep in mind:
- Investment thesis: The first step to building a crypto portfolio is developing a crypto investment thesis. Take time to read up on the crypto industry and projects that interest you. Next, figure out how much you want to invest in crypto, which coins you want to buy, and your expected returns. You should also know why you want to invest in crypto.
- Diversification: While it may be tempting to concentrate all your funds into one altcoin (or non-Bitcoin crypto), it’s safer to build a diverse portfolio. The more assets you have from different Web3 sectors, the better the odds of minimizing downside risk. For example, you can gain exposure to smart contract blockchains with Ethereum (ETH), peer-to-peer payments with Bitcoin, and metaverse gaming with MANA, APE, or SAND tokens.
- Rebalancing: When you rebalance your portfolio, you buy or sell positions to your preferred percentages. For instance, let’s say you want a crypto portfolio with 50% Bitcoin, 25% Ethereum, and 25% speculative altcoins. If your small-cap altcoins suddenly rise and capture more than 35% of your portfolio, you may need to sell profits and adjust your BTC or ETH exposure. Knowing your portfolio percentages beforehand can help take emotions out of buying and selling different cryptocurrencies.
- Monitoring: Most crypto investors use portfolio trackers to help them monitor the overall price of their cryptocurrencies. Analyzing this data should help you determine when it might be best to add or reduce a position.
- Exit strategy: Every crypto investor should mentally prepare for a bear market. If the prices of digital assets fall, you need to know ahead of time how much you’re willing to lose. Developing an exit strategy will help you reduce losses if your trading technique doesn’t work in your favor.
Are there crypto portfolio management tools?
While you can usually track your trading activity on centralized crypto exchanges (CEXs), many software applications specifically track crypto portfolios. Some apps focus on crypto taxes, while others offer a general overview of your trading activity. Although a few of these crypto portfolio trackers are free, others charge a subscription fee for advanced features.
A crypto portfolio tracker will often ask you to link the APIs on whatever crypto exchanges you use. You may also have to submit your public wallet address so your tracking software can register crypto transfers.
Those who don’t feel comfortable handing over their wallet addresses or APIs can also find manual crypto portfolio trackers. As the name suggests, these apps make you manually type your crypto buy and sell orders.
Besides software crypto portfolio trackers, many companies offer personalized crypto management services. For example, Coinbase, Bitwise, and Galaxy Digital offer crypto portfolio management services to clients that meet their specifications.
Examples of crypto portfolio trackers
The list of crypto portfolio trackers is growing each year, but here are a few well-known examples:
- CoinMarketCap: Besides being a significant crypto price aggregator, Binance’s CoinMarketCap offers a manual crypto portfolio tracker. If you have a CoinMarketCap account, you can type your buy and sell orders on this software and monitor your portfolio.
- CoinGecko: Similar to CoinMarketCap, CoinGecko is a respected crypto price aggregator site that offers a free crypto tracking tool. If you sign up for CoinGecko, you can manually put in your crypto purchases and view real-time data on your portfolio’s price.
- CoinStats: CoinStats is a subscription-based crypto portfolio management software that links with dozens of crypto exchanges, wallets, and DeFi (decentralized finance) protocols.
Wrapping up
Portfolio management can reduce the stress associated with crypto market volatility to a large extent. Although managing your portfolio won’t eliminate risk, it can help keep your expectations and emotions in check.
At Worldcoin, we aim to make everyone aware of the risks and opportunities of cryptocurrency. We also intend to give everyone a freeshare of our crypto. Subscribe to our YouTube channel to learn more about buying, storing, and using digital assets.
