Analystos
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What I Learned from Buying $1 Worth of Crypto Every Night for 30 Days
Over the past 30 days, I decided to try something different. Every night, I bought $1 worth of cryptocurrency. It wasn’t much, but it gave me a unique perspective on the world of crypto investing. I ended up purchasing 30 different cryptocurrencies, one each night. What I didn’t expect was how much my portfolio's value fluctuated, especially as I kept adding more coins. I thought that diversifying would protect me, but instead, I faced a lot of volatility. Here’s what I learned from this experience.
The Dangers of Over-Diversification
At first, the idea of spreading my investments across many different coins seemed like a smart move. After all, diversification is often touted as a key strategy in investing. But as I continued, it became clear that it wasn’t working as well as I’d hoped. Some of the coins I bought were relatively stable, while others swung wildly in value. The result? Every time I added a new coin, my portfolio’s overall value seemed to dip.
Not all coins are created equal, and many of the ones I invested in were far from stable. Some of them had little to no movement, while others saw massive spikes or drops that impacted my overall performance. While diversification works in traditional investments, the crypto market is a different beast. Volatility can erase the benefits of diversification, especially if you’re mixing stablecoins with highly speculative assets.
The Three Portfolios Strategy
From this experiment, I realized that a more structured approach to managing my crypto investments might have worked better. Instead of blindly diversifying across 30 different coins, I could have built three separate portfolios, each serving a specific purpose. Here’s what I came up with:
1. Stable Portfolio
This portfolio would consist of stablecoins—assets like USDT, USDC, or DAI. These coins are pegged to fiat currencies (like the US dollar), meaning their value doesn’t fluctuate wildly. The goal here is stability and preserving value over time.
2. High-Risk, High-Reward Portfolio
The second portfolio would be for the risk-takers, focusing on coins with high growth potential but also a lot of volatility. These are the coins that can go through huge price swings. While some of them may not be stable, they offer the chance for big returns when they go up. Think of this as your “high-risk, high-reward” segment of your portfolio.
3. Balanced Portfolio
The third portfolio would be a mix of both stablecoins and more volatile assets. This would help manage risk while still giving you the potential for growth. By mixing stablecoins with higher-risk coins, you can balance out some of the wild price swings while also positioning yourself to benefit from any potential market upswings.
Understanding Risk Management in Crypto
When it comes to investing, risk management is crucial. It’s not just about how much you invest, but how you spread your risk across different assets. In the case of my crypto experiment, I learned that each coin carries its own level of risk, and that level of risk can change over time.
Risk Management Equation:
Risk = (Potential Volatility) x (Amount Invested)
Here, potential volatility refers to how much a coin’s price can move up or down in a given time. The amount invested is the capital you’ve allocated to a particular asset. The more volatile a coin is, the higher the risk. This is why balancing your portfolio with both stablecoins and speculative assets can help mitigate some of the risks while maximizing potential returns.
A Smarter Way to Invest in Crypto
Looking back at my 30-day crypto journey, I now see the importance of creating a diversified, but more structured portfolio. By having three distinct portfolios based on risk and stability, I could’ve managed my investments more effectively.
As an investor, it’s important to understand the coins you're investing in, not just the amount of money you're putting in. The best strategy involves balancing your risk across different types of coins and staying informed about market conditions.
Question:
If you're curious about which coins I invested in during these 30 days, or which stablecoins I think are the best for a low-risk portfolio? Let me know in the comments below!
Follow for Part 2 👍
The Dangers of Over-Diversification
At first, the idea of spreading my investments across many different coins seemed like a smart move. After all, diversification is often touted as a key strategy in investing. But as I continued, it became clear that it wasn’t working as well as I’d hoped. Some of the coins I bought were relatively stable, while others swung wildly in value. The result? Every time I added a new coin, my portfolio’s overall value seemed to dip.
Not all coins are created equal, and many of the ones I invested in were far from stable. Some of them had little to no movement, while others saw massive spikes or drops that impacted my overall performance. While diversification works in traditional investments, the crypto market is a different beast. Volatility can erase the benefits of diversification, especially if you’re mixing stablecoins with highly speculative assets.
The Three Portfolios Strategy
From this experiment, I realized that a more structured approach to managing my crypto investments might have worked better. Instead of blindly diversifying across 30 different coins, I could have built three separate portfolios, each serving a specific purpose. Here’s what I came up with:
1. Stable Portfolio
This portfolio would consist of stablecoins—assets like USDT, USDC, or DAI. These coins are pegged to fiat currencies (like the US dollar), meaning their value doesn’t fluctuate wildly. The goal here is stability and preserving value over time.
2. High-Risk, High-Reward Portfolio
The second portfolio would be for the risk-takers, focusing on coins with high growth potential but also a lot of volatility. These are the coins that can go through huge price swings. While some of them may not be stable, they offer the chance for big returns when they go up. Think of this as your “high-risk, high-reward” segment of your portfolio.
3. Balanced Portfolio
The third portfolio would be a mix of both stablecoins and more volatile assets. This would help manage risk while still giving you the potential for growth. By mixing stablecoins with higher-risk coins, you can balance out some of the wild price swings while also positioning yourself to benefit from any potential market upswings.
Understanding Risk Management in Crypto
When it comes to investing, risk management is crucial. It’s not just about how much you invest, but how you spread your risk across different assets. In the case of my crypto experiment, I learned that each coin carries its own level of risk, and that level of risk can change over time.
Risk Management Equation:
Risk = (Potential Volatility) x (Amount Invested)
Here, potential volatility refers to how much a coin’s price can move up or down in a given time. The amount invested is the capital you’ve allocated to a particular asset. The more volatile a coin is, the higher the risk. This is why balancing your portfolio with both stablecoins and speculative assets can help mitigate some of the risks while maximizing potential returns.
A Smarter Way to Invest in Crypto
Looking back at my 30-day crypto journey, I now see the importance of creating a diversified, but more structured portfolio. By having three distinct portfolios based on risk and stability, I could’ve managed my investments more effectively.
As an investor, it’s important to understand the coins you're investing in, not just the amount of money you're putting in. The best strategy involves balancing your risk across different types of coins and staying informed about market conditions.
Question:
If you're curious about which coins I invested in during these 30 days, or which stablecoins I think are the best for a low-risk portfolio? Let me know in the comments below!
Follow for Part 2 👍
Disclaimer: Includes third-party opinions. No financial advice. May include sponsored content. See T&Cs.