Cryptocurrency is now one of the most popular asset classes for investors worldwide, offering a viable alternative to ‘traditional’ assets like equities, bonds, and real estate. Although crypto is often much more volatile than other investments, it can offer unparalleled returns potential and unique diversification opportunities within a well-structured portfolio.
With that in mind, this guide takes a comprehensive look at the best crypto portfolio allocation for both beginner and advanced investors. We’ll explore how to build a well-diversified portfolio in detail before presenting a selection of high-potential crypto assets that investors may wish to check out.
Best Crypto Portfolio Allocation – Key Points
Choosing an appropriate cryptocurrency portfolio allocation is crucial for maximizing returns and minimizing risk. Ultimately, this all boils down to the concept of diversification, which is a widely-used strategy that helps limit an investor’s exposure to a particular asset – instead spreading this exposure over an array of assets.
Thus, when constructing a crypto portfolio, investors should always consider this concept of diversification. This means refraining from ‘putting all their eggs into one basket’ and instead placing their capital in a wide range of cryptos.
Importantly, these cryptos should be different from one another – as this will ensure their returns are sufficiently contrasted. For example, investors may wish to purchase cryptos with different use cases, sizes, token structures, and roadmaps.
It’s also wise to be aware of the most searched crypto projects, as these are often ‘trending’ and offer excellent returns opportunities. Regardless of how a portfolio is structured, investors must regularly rebalance the portfolio’s composition, ensuring that non-performing assets are removed and replaced with more effective ones.
Finally, investors should also be aware of their unique risk tolerance and construct their portfolios accordingly. Some investors may be risk-averse, so they should stick to large-cap cryptos with the lowest volatility: Bitcoin and Ethereum are prime examples of this.
On the other hand, certain investors may be risk-tolerant, meaning they’re happy to purchase higher-volatility assets or invest in the best crypto presales. Although the risk factor is much higher with these assets, they often provide greater returns than their ‘safer’ counterparts – which is worth bearing in mind.
Building a Diversified Crypto Portfolio – Core Strategies
According to CoinMarketCap, the cryptocurrency market is now valued at over $1.1 trillion – more than double its value in 2020. The current scale of the market brings limitless investment opportunities, meaning it can be overwhelming for new crypto investors.
Fortunately, there are several tried-and-tested strategies for finding the ideal crypto asset allocation. Let’s take a look at a few of these strategies below:
Combine Well-Established Cryptos with New Presale Projects
When creating the best crypto portfolio allocation, one of the most important things to do is invest in cryptocurrency projects of varying sizes. This ties into the concept of diversification highlighted earlier since different-sized cryptos will often produce different returns.
For example, market-leader Bitcoin is likely the most popular crypto asset investors look to add to their portfolios. However, Bitcoin’s returns are often incomparable with smaller cryptocurrencies, like Arbitrum and Fantom. Thus, investors can optimize their portfolio’s risk-return ratio by investing in both small and large cryptos.
Risk-tolerant investors can even go one step further and consider brand-new cryptos going through their presale phase. Love Hate Inu is a prime example of this – as a presale crypto, it has unparalleled returns potential that well-established projects don’t have.
Investors happy to take on a little extra risk could invest in crypto presales like Love Hate Inu to exponentially increase their returns potential. Although this approach will increase risk simultaneously, since these projects are in the early stages of their growth, it can prove fruitful over the long term.
Diversify Across Different Areas of the Market
Another important aspect of crypto portfolio management is diversifying across different market areas. Not all cryptocurrencies are made equal, meaning each has its own ‘specialty’ within the context of the broader crypto sector. As such, a crypto that operates in one area will often produce different returns than one operating in another.
Thus, investors may wish to research the best cryptocurrency to invest in from several areas to ensure their portfolios are well-balanced. Here are some examples of popular areas within the crypto market right now:
- Decentralized Finance (DeFi)
- Metaverse cryptocurrencies
- NFT projects
- Blockchain gaming cryptos
- Peer-to-Peer (P2P) payment solutions
- Artificial Intelligence (AI) cryptos
Cryptos involved in different sectors will have different use cases than one another. Again, this ties into the contrasting nature of their returns – so it’s a good idea to consider various areas of the market to help lower a portfolio’s overall risk.
Consider Cryptos from Various Blockchain Networks
Identifying the best crypto portfolio allocation will also involve investing in cryptocurrencies from different blockchain networks. This may seem like common sense, but many investors fail to realize that the assets they’re investing in are highly correlated with the blockchains they’re linked to.
Take Uniswap and Aave as an example. Uniswap is a massive decentralized exchange (DEX) hosted on the Ethereum blockchain, while Aave is a lending protocol built on the same blockchain. As such, these cryptos have returns that are inextricably tied to Ethereum’s performance.
If Ethereum suffers a huge crash, then Uniswap and Aave’s prices will likely fall – meaning it’s a good idea to purchase coins/tokens from other blockchains, too. Some other blockchains that investors may wish to consider checking out include the following:
Invest in Crypto-Focused Stocks
Although finding the best Reddit crypto to buy is undoubtedly the most effective way to gain direct exposure, some investors may prefer to gain indirect exposure to the crypto market. A popular method of achieving this is by investing in crypto-focused stocks.
Investing in these stocks effectively diversifies a crypto portfolio since their returns differ significantly from crypto. Stocks are also usually much less volatile, meaning they can be an excellent option for investors with lower risk appetites.
Some examples of crypto-focused equities include:
- Coinbase (COIN) – One of the world’s leading crypto exchanges; trades on the NASDAQ
- Marathon Digital (MARA) – A Bitcoin mining company based in the US; trades on the NASDAQ
- MicroStrategy (MSTR) – An IT company that is heavily invested in Bitcoin; trades on the NASDAQ
- Robinhood (HOOD) – A brokerage app that offers low-cost crypto trading services; trades on the NASDAQ
Make Sure to Rebalance Regularly
The final point to remember is that the crypto market is ever-changing. As such, investors must be prepared to rebalance their portfolios regularly. This ensures that assets exhibiting poor performance are removed and replaced with assets that have a higher chance of positive performance – thereby increasing the overall returns potential of the portfolio.
Top Cryptocurrencies for Your Portfolio in 2023
Having a strategy for determining a cryptocurrency portfolio allocation is all well and good – yet it’s also essential to thoroughly research and analyze the specific projects to invest in. With that in mind, detailed below are five potential cryptos that investors may wish to consider:
1. Love Hate Inu (LHINU) – New Presale Crypto Project with Limitless Growth Potential
As mentioned earlier, a well-diversified portfolio will have a mix of established and newer cryptos. One project that falls firmly into the latter camp is Love Hate Inu – a brand-new project that combines the popular meme coin aesthetic with a disruptive use case.
Love Hate Inu looks set to be one of the cryptos with the highest potential due to its unique Vote-to-Earn (V2E) mechanic. Hosted on the Ethereum blockchain, Love Hate Inu’s platform enables users to band together and vote on trending topics, whether that be sports, politics, world events, or even specific people.
Through its user-friendly platform, Love Hate Inu aims to create a welcoming community that promotes healthy and constructive debate surrounding these topics. However, the project excels by ensuring users are rewarded with LHINU tokens whenever they participate in the platform’s polls.
As per the Love Hate Inu whitepaper, LHINU is Love Hate Inu’s native ERC-20 token and is earned every time a user votes in the offered polls. Love Hate Inu ensures these polls are legitimate by requiring all users to stake LHINU for at least 30 days before participating – this helps remove spam/bot accounts from the equation.
Love Hate Inu’s unique way of rewarding users has already created massive hype throughout the investment community – with thousands of people opting to join the official Telegram channel. At the time of writing, Love Hate Inu is still in its presale phase, making it an effective option for those seeking to add a newer crypto to their portfolios.
Investors can buy LHINU tokens through the presale at a discounted price relative to the future listing price. This presale will have eight stages, with the token price incrementally increasing. Due to this structure, the earlier an investor gets involved, the lower their entry price.
2. Ethereum (ETH) – Decentralized Blockchain Network for dApp Developers
Another asset to consider when determining the most effective crypto asset allocation is Ethereum. For those unaware, Ethereum is the second-largest cryptocurrency globally (behind Bitcoin), boasting a market cap of over $210 billion at the time of writing.
Ethereum is a blockchain platform launched in 2015 that enables developers to construct decentralized applications (dApps) easily. The platform’s native currency is ETH, which has various use cases – mainly paying for fees that arise from deploying smart contracts.
ETH is often touted as one of the best long-term crypto projects to invest in since it provides direct exposure to the Ethereum network’s growth. This network has enormous potential and is now the go-to for developers operating in exciting areas like the metaverse and NFTs.
The ETH price hit an all-time high of $4,891 in November 2021, yet it now trades around 64% below that level. This provides a compelling opportunity for investors to acquire ETH at a relative discount since it could represent a fruitful addition to an investment portfolio.
3. Ripple (XRP) – Low-Cost Payments Network with Stellar Reputation
Ripple is another well-known crypto that could be worth considering. Although Ripple is the name of the company behind the crypto project, it’s often used interchangeably with XRP when discussed in an investment context.
Ripple’s primary offering is called ‘RippleNet’ – a disruptive payment network that allows individuals and businesses to send cross-border payments quickly and cost-effectively. XRP is the native token of this network, used for settlement and to pay for fees.
Thus, crypto investors often purchase XRP to gain exposure to RippleNet’s growth since the token is easily obtainable through cryptocurrency exchanges. At the time of writing, XRP’s price is hovering around the $0.47 level – more than 87% below its all-time high posted in January 2018.
It’s important to note that Ripple and the SEC have been locked in a legal battle for the past two years, with the latter claiming that XRP is an unregistered security. This is why the XRP price has been so volatile recently and will continue to be so until the issue is resolved.
4. Binance Coin (BNB) – Native Token of the Binance Crypto Exchange
Constructing the best crypto portfolio allocation involves investing in assets that aren’t related to the main blockchain networks (e.g., Bitcoin, Ethereum). Binance Coin is a popular asset in this regard since it isn’t tied to either of these blockchains and is instead exposed to Binance’s growth and performance.
Binance Coin is mainly used for paying fees within the context of the Binance exchange. When users pay fees using Binance Coin, they will receive a significant discount – providing a clear incentive for these users to buy and hold this crypto.
Although Binance was initially an ERC-20 token, it has since migrated to Binance’s blockchain, the BNB Chain. This had added even more use cases for BNB, meaning it’s often one of the top five largest cryptos globally, as measured by market cap.
Thus, investors constructing a well-diversified portfolio may wish to consider BNB since it offers something different from BTC and ETH. However, it’s essential to be aware that BNB is tied to the Binance exchange, so whenever Binance is in the news for the wrong reasons, the BNB price tends to take a hit.
5. NEAR Protocol (NEAR) – New Blockchain Network with Massive Scalability
The final crypto that we’d recommend considering for a portfolio is NEAR Protocol. NEAR Protocol is the smallest crypto on our list, weighing in with a market cap of just $1.6bn, yet this means it has tremendous upside relative to the others we’ve mentioned.
Essentially, NEAR Protocol is a Proof-of-Stake (PoS) blockchain network that looks to rival the likes of Ethereum and Solana. The network supports various programming languages, making it suitable for developers looking to build dApps.
NEAR tokens are the native currency used on the network. These tokens are mainly used to pay transaction fees stemming from smart contract execution. However, NEAR can also be staked by validators to earn staking rewards, which are also denominated in NEAR tokens.
One crucial difference between the NEAR Protocol and some other blockchains is that it uses a concept called ‘sharding’ to improve scalability. This means NEAR Protocol can handle around 100,000 transactions per second (TPS) – far higher than Bitcoin and Ethereum.
Benefits of Having a Well-Balanced Crypto Portfolio
Effective crypto portfolio management can be the difference between making a loss and generating a profit – so it’s essential to get it right. With that in mind, here are some of the key benefits of creating a well-balanced portfolio:
Reduces Overall Portfolio Risk
Naturally, the main benefit of creating a well-diversified crypto portfolio is that it helps reduce the overall investment risk. As mentioned earlier, the process of diversification lessens the exposure to a single asset’s poor performance – meaning that if one asset posts a loss, there’s a chance another asset will make a gain.
This isn’t always the case, but regardless, diversification is undoubtedly a well-suited strategy for long-term investing. The alternative is to invest in just one or two assets and hope for the best – this may work in some cases, but it won’t play out well on average.
Maximizes Returns Potential
Tying into the previous point, using the best crypto portfolio allocation has the benefit of maximizing returns potential for investors. Again, this is because investors aren’t overexposed to the performance of one or two assets.
In turn, if a few assets don’t perform very well, then other assets in a well-diversified portfolio will ‘pick up the slack’ and contribute towards positive performance.
Provides Exposure to Different Areas of the Market
Creating a well-balanced portfolio also exposes investors to market areas they might not have considered investing in. This is because many crypto investors opt to diversify into high-potential niches, such as metaverse cryptos or NFT-focused projects.
Investing in the best future crypto projects is one of the most popular ways investors diversify within the crypto market. This is because the DeFi space continues to grow rapidly and was reportedly valued at over $13.6 billion in 2022. Investors can gain exposure to this rapidly-expanding sector by purchasing coins like AAVE and UNI.
Hedges Against Major Regulatory Changes
Finally, crypto regulation is a hot topic globally – especially in the US. Currently, cryptocurrencies in the US fall under the Bank Secrecy Act, yet they are also policed by the SEC. On top of that, the CFTC also plays a role in investigating crime within the crypto sector.
Given the multitude of organizations involved in regulation, market conditions can change rapidly. As such, holding a well-balanced portfolio can ensure investors are ‘flexible’ within the context of the market and aren’t overly affected by regulatory upheaval.
How to Effectively Diversify Your Crypto Portfolio
According to Statista, there are over 8,600 cryptocurrencies worldwide, with new ones launching weekly. Due to this, it can seem overwhelming to create a well-balanced portfolio, given the abundance of investment options.
To help streamline this process, detailed below are five simple steps that investors can take to put them on the right pathway when building a crypto portfolio:
Step 1 – Determine Investment Goals
The first (and most important) step investors must take is determining their investment goals. These investment goals will inform all of the other steps in this process, so adequate time must be spent deciding which ones are best suited to your goals and needs.
Investment goals tend to consider the investor’s risk tolerance, investment horizon, and ideal returns. Some investors may also wish to only invest in certain asset classes or specific geographical regions – this should also be reflected on.
Step 2 – Choose a Strategy
Once investment goals have been set, investors can think about which strategy they’d like to employ. Several strategies can be used, although some of the most popular include the following:
- Dollar-cost Averaging: This involves investing a fixed amount into the portfolio’s assets at regular intervals, regardless of the price.
- Buy-and-Hold: As the name suggests, this strategy is when an investor creates a portfolio and then ‘holds’ it without making any changes – aiming to benefit from long-term price appreciation.
- Value investing: This strategy involves buying cryptos that are considered undervalued relative to their intrinsic value.
- ICO/IDO investing: Some investors may wish to solely purchase ICO/IDO cryptos. This is a high-risk strategy, although it can provide exponential returns if performed correctly.
Step 3 – Research Potential Assets
Now it’s time for research. This is when investors must analyze the market to uncover the best emerging cryptocurrencies to fit their investment goals and chosen strategy.
Researching the market usually involves creating a shortlist of potential assets and then looking into their historical price performance, fundamentals, tokenomics, and whitepapers. Investors may also wish to research on a macro level, analyzing the overall crypto market trends and regulations.
Step 4 – Select an Appropriate Asset Allocation
The next step is about the investor finding the best crypto portfolio allocation that suits their requirements. For example, if an investor has $10,000 to allocate, how should they spread this capital throughout the portfolio?
Some investors opt to place an equal amount of capital in every asset, while others choose to put most of their capital in ‘safer’ cryptos and use the remainder for riskier projects. Again, this all comes down to the individual’s goals and preferences.
Step 5 – Rebalance/Monitor the Portfolio
Once the portfolio is set up, the job is not yet done – investors must continue to monitor their portfolios over the long term. This ensures that the portfolio is optimized for any given market conditions.
Monitoring a portfolio involves rebalancing the asset allocation, getting rid of poorly-performing assets, and buying new cryptos that offer exciting opportunities. This process continues indefinitely, so investors must always be up-to-date with current events.
Balancing Crypto Investments vs. Other Assets
Finding the best crypto portfolio allocation is just one aspect of the investment process – albeit an important one. Investors must also consider how a well-diversified portfolio differs from a portfolio filled with ‘traditional’ assets, such as stocks, bonds, and real estate.
The most apparent difference between these two processes is that cryptocurrency portfolios are inherently more volatile than their non-crypto counterparts. As such, investors must pay closer attention to factors like asset allocation when creating a crypto portfolio since the portfolio’s value will likely fluctuate much more than with other asset classes.
Another essential difference to be aware of is the issue of liquidity. In simple terms, liquidity refers to the level of trading volume that a specific cryptocurrency has. The higher the level of trading volume, the more buyers/sellers there are – which equates to a much easier investing process.
Given the crypto market’s maturity relative to other asset classes, some coins/tokens can be illiquid. This means that crypto is difficult to buy or sell, so even if an investor has locked in a ‘paper profit’, they may not be able to find a buyer at the market price.
This is a crucial consideration when creating a crypto portfolio, as investors ultimately wish to make a tangible profit rather than a paper profit. A portfolio containing an array of illiquid assets can be a significant issue, as investors may need to sell these assets at a lower price than they’d hoped.
The final consideration regarding crypto portfolios and other asset classes is that the crypto market is still rife with fraud and manipulation. A report released by the Federal Trade Commission in 2022 showed that over 46,000 people had reported losing money due to crypto cams since the start of 2021 – equating to over $1 billion in stolen assets.
Although crypto market safety is increasing, how these assets are designed makes them much easier to steal than stocks and bonds. As a result, investors creating a portfolio of these assets must ensure they use a reputable wallet provider to store them – preferably via a hardware wallet.
Examples of Well-Balanced Cryptocurrency Portfolio Allocations
As noted previously, finding the best crypto portfolio allocation must take into account the individual’s risk tolerance level, trading goals, and investment horizon. Due to this, there’s no ‘one size fits all’ portfolio allocation for crypto investors – each investor must choose their own.
However, there are some popular examples of portfolio allocations that are widely used within the investment community. These allocations are described below:
The 60/40 Portfolio
This portfolio is a spin on the hugely-popular asset allocation used throughout the traditional finance sector, which sees investors allocate 60% of their capital to stocks and 40% to bonds. Translating this into crypto, the 60/40 portfolio would see 60% of the investor’s capital allocated to Bitcoin and 40% to Ethereum.
As can be seen right away, this portfolio only contains two assets – although these two assets are considered the most well-established in the market. Due to this, the 60/40 portfolio allocation is a suitable option for investors with a low tolerance for risk.
The 33% Portfolio
Those with a higher risk tolerance may wish to utilize the 33% method. This is when an investor places 33% of their capital in Bitcoin, 33% in Ethereum, and 33% in high-risk, high-reward cryptos.
This latter 33% can be anything the investor is interested in and feels will perform well. A good example would be Love Hate Inu, which is riskier than BTC and ETH yet has the potential to offer much higher returns.
Finally, risk-seeking investors who are happy to tolerate additional volatility may wish to opt for a more aggressive portfolio allocation. This involves placing a smaller percentage of their total capital base in BTC and ETH, leaving a larger portion for riskier cryptos.
For example, some investors may wish to place just 40% of their capital in BTC and ETH, split evenly across the two cryptos. This leaves a whopping 60% of the remaining capital to be used across more volatile cryptos with higher return potential.
Best Crypto Portfolio Allocation – Conclusion
To conclude, this guide has taken an in-depth look at how to create the best crypto portfolio allocation by covering several tried-and-tested strategies that help minimize risk and maximize returns.
One of the most popular ways for risk-tolerant investors to boost their returns potential is to invest in new crypto projects with high potential. Love Hate Inu is an excellent example of one of these projects since its unique use case and rapidly growing community have put it in the prime position for growth.
Those looking to invest in Love Hate Inu can buy LHINU tokens through the project’s presale phase. Tokens are currently available at a discount relative to the future listing price, meaning early investors can give themselves a solid chance of making a profit in the future.