Even if you don't purposefully apply crypto portfolio management but invest in or plan to invest in cryptocurrencies, buy and sell them, you are already using or will be using it in one way or another. This guide is designed to help you understand and structure everything better so that you can manage your investments, handle risks, boost profits, and adjust to rapid market fluctuations like a real crypto portfolio manager.
Let's get started.
What Is a Crypto Portfolio?
Everything starts with a crypto portfolio, a compilation of digital assets owned by an investor. These assets typically include:
- Coins: Examples include Bitcoin (BTC) and Ethereum (ETH).
- Tokens: Such as Chainlink (LINK) for utility or Uniswap (UNI) for governance.
- Stablecoins: Assets pegged to fiat currencies, like USDT or USDC.
An investor builds and manages their portfolio by buying, holding, and selling a particular cryptocurrency. However, this is not the whole process of portfolio management.
What Is Crypto Portfolio Management?
Crypto portfolio management refers to the process of strategically forming, monitoring portfolios, and optimizing crypto investments. It involves techniques to balance risk and reward while achieving specific financial objectives for this type of investment. Effective management requires understanding market trends, diversification, and leveraging tools to track and analyze asset performance.
Managing your portfolio is essential because the crypto market operates differently from traditional financial markets. Rapid price fluctuations, unique blockchain technologies, and emerging asset classes make crypto management challenging and rewarding for investors.
Why Portfolio Management Matters
Given the youth and volatility of the crypto market, managing their assets is an important task for investors. Some people believe it is enough to hold crypto until a set price and simply sell when the price is right. Others think the portfolio should be actively managed so there are plans B and C. Both approaches have a right to life and benefit from the application of a well-formed crypto portfolio management strategy.
Key benefits include:
- Minimized Risks: Diversification spreads risks across different assets.
- Enhanced Returns: Strategic asset allocation allows you to leverage market trends.
- Rational Choices: A structured approach helps avoid impulsive decisions driven by emotions.
Effective Strategies for Managing a Crypto Portfolio
In general, portfolio management includes several strategic stages. The first is the formation of the portfolio, the selection of assets to be included in it, and the determination of the allocation size (how much in dollars equivalent will be invested in a particular asset). Read this article to better understand how to build a crypto portfolio.
The next stage is the purchase of tokens or coins when the investor directly buys the assets that were decided to be included in the portfolio.
Another stage is monitoring. After the portfolio has been formed, the investor occasionally checks its performance, i.e., monitors how a particular investment is doing in a particular period. There are crypto tracking apps for this.
Another important stage is rebalancing and repositioning. Some assets may perform better than others, so the initial allocations can change over time. To prevent over- or under-exposure, rebalancing is used. This is when assets are sold or bought to bring the portfolio back to predefined values. Repositioning means selling some assets and adding new ones to the portfolio.
Let's also examine universal strategies for portfolio management. We'll mention them briefly here, but we have a separate blog post on each topic, so click on the link if you're interested.
1. Diversification
To minimize risks, spread investments across various cryptos, industries, and asset classes.
2. Risk Management
- Use stop-loss orders to prevent substantial losses.
- Base position sizes on your risk tolerance
- Read other tips in this article about risk management.
3. Strategic Asset Allocation
Distribute funds wisely between high-risk altcoins, stablecoins, and mid-cap projects.
4. Regular Rebalancing
Review and adjust your portfolio periodically to ensure it aligns with your objectives.
Tools to Streamline Portfolio Management
Several tools simplify the process of monitoring and managing crypto portfolios:
- 3Balance: crypto portfolio management tool that combines a wallet tracker and rebalancing tool.
- DeBank: One of the most advanced portfolio tracking tools for EVM networks. Free to use, including paid features.
- CoinStats: Offers in-depth analytics and tracking capabilities.
- SonarWatch: Cool portfolio tracker for EVM and non-EVM networks like Solana, Sui, Aptos, and Sei.
Try 3Balance now. It is free!
Manage your crypto portfolio like a Pro: set up your ideal allocations, swap multiple tokens in one flow and much more. Check it out!
Metrics That Matter
Every investor's goal is to ensure that the value of their portfolio grows over time. This is exactly what crypto management is for. Here are the metrics and why you should pay attention to them.
1. Performance Metrics
Track portfolio growth and assess whether it meets your financial goals. Learn how to understand price charts. This is the most obvious metric, as you need to understand whether your portfolio is growing, how, why not, what can be changed, and so on.
2. Volatility Monitoring
Understand and manage the fluctuations in asset prices. This is where you can apply rebalancing and repositioning. Follow the charts, news, and development of the projects you have invested in.
3. Trend Awareness
Stay informed about market dynamics, including sentiment and macroeconomic impacts. This, in combination with the rest, will allow you to make more informed decisions about your portfolio management: diversification, buying new assets or selling existing ones, etc.
Avoid These Common Pitfalls
Doing something right is as important as not doing it wrong. Here are some general points on common mistakes when managing your portfolio.
- Excessive Trading: Avoid overtrading to curb unnecessary fees and emotional decisions.
- Lack of Diversification: Invest across different assets to spread risks effectively.
- Emotional Investing: Rely on data rather than market hype or fear.
- Ignoring Fees and Taxes: Factor in transaction costs and legal obligations.
Advanced Portfolio Strategies
Unlike traditional financial tools, cryptocurrencies have more use cases for additional earnings. Learn about them to maximize your profits. However, always remember that additional risks come together with opportunities.
For example, in addition to the potential growth in price, while you hold crypto, you can use your assets for yield farming or providing liquidity.
Another advanced strategy is hedging your positions. You can use derivatives, like futures or options, to hedge against market downturns.
Asset Management vs. Portfolio Management
From an academic point of view, these two concepts are not identical, but they are often used synonymously. Let's define them.
What Is Crypto Asset Management?
- Focuses on the overall oversight of cryptocurrency holdings.
- Includes strategies for long-term growth, such as staking, yield farming, and earning passive income from assets.
- Often involves a broader scope, like managing holdings across multiple wallets or platforms.
- It may be handled by professional asset managers or platforms offering full-service management solutions.
Read this article in our blog to understand asset management in crypto better.
What Is Crypto Portfolio Management?
- Concentrates on curating and maintaining a balanced portfolio of cryptocurrencies.
- Emphasizes tactical allocation, diversification, and regular rebalancing to meet specific financial goals.
- Often carried out by individual investors or through specialized tools designed for portfolio tracking and optimization.
Crypto portfolio management is a specific subset of crypto asset management, focusing on short- to medium-term strategies to optimize a collection of assets rather than their broader usage or utility.
Continue Learning
You can't read one article or watch one video and learn how to manage your portfolio like a financial genius. Always look for ways to improve yourself. In addition to acquiring theoretical knowledge, be interested in real-life experiences and examples.
What exactly should you look for? There are two main things: success stories and common mistakes. Since crypto has all the data recorded in the blockchain, you can find the portfolio of large investment companies such as a16z and see what they invest in and in what sizes.
You can also find the wallets of successful investors or traders and track their transactions. Of course, you don't have to blindly copy everything, but understanding how others manage their investments can be valuable or interesting. Major players in the crypto market may have their own blogs or social media profiles, so you can even ask them questions.
The same applies to others' mistakes, but vice versa. Analyze this experience, and do not repeat it yourself.
The Future of Crypto Portfolio Management
AI tech growth in recent years has also affected crypto. Today, machine learning can be used to make automated investment decisions, and AI agents can automate investment and trading processes.
The further development of DeFi will facilitate the emergence of even more financial products for investors designed to either simplify the work with this sector or increase and diversify potential income.
At the same time, the further development of portfolio management tools will make this process even more automated, accessible to many, and convenient. This is precisely what we aim to achieve by developing 3Balance.
Additional Resources
- Books: The Bitcoin Standard by Saifedean Ammous, Mastering Bitcoin and Mastering Ethereum by Andreas M. Antonopoulos, The Economics of Cryptocurrencies edited by J Mark Munoz, Michael Frenkel, and others can help you better understand crypto.
- Courses: Explore blockchain certifications on platforms like Coursera and Udemy.
- Tools: Popular management apps include 3Balance, DeBank, SonarWatch.
Conclusion
Managing a cryptocurrency portfolio effectively is critical for thriving in the fast-paced crypto market. With the right strategies, tools, and knowledge, you can build a portfolio that balances risks and rewards, helping you achieve your financial goals. Begin small, stay informed, and continuously refine your approach.
