Top 5 Mistakes to Avoid in Crypto Portfolio Management

When operating in the crypto market, you are always on high alert because you never know when the value of a coin will spike or decrease. At one moment, the value of a crypto is highly valuable, and in the very next moment, it becomes completely worthless. This can be scary, especially if a large sum of your assets is in crypto.

How you manage your crypto profile has a huge impact on your success in the market. With effective crypto portfolio management, it’s entirely possible to minimize risks, maximize your gains, and maintain a balanced investment approach. Moreover, it not only helps to maintain your existing portfolio but also allows getting an additional profit. 

But, mistakes such as neglecting diversification, failing to track your holdings, or making emotional trading decisions can impact your financial success. In this article, we will be exploring the five most common and critical mistakes to avoid in crypto portfolio management for long-term stability and profitability in the world of crypto. 

1. Lack of Diversification 

One of the most common mistakes crypto investors make is to invest in one single coin. It cannot be emphasized enough how big of a blunder this usually is. Many newbies in crypto often invest all their funds in a single trending cryptocurrency for big profits. However, it is a very risky technique as the crypto market is highly volatile and keeps swinging now and then without causing harm. Regular changes, market crashes as well as technological interruptions can highly impact your financial success. 

Therefore, it is recommended to always opt for two to three or maybe more coins when you are investing in crypto. This is considered one of the most effective management techniques. You can allocate your funds in different categories such as DeFi (decentralized finance), NFTs (non-fungible tokens) and blockchains like Ethereum and Solana. 

Investing in such a way may not eradicate the risk but it spreads it across to other coins so that you may not lose it all at once. It also provides a shield against sudden downturns in the crypto market. A well-established and well-diversified approach becomes a strong base for a successful crypto portfolio management strategy. So, careful selection of assets from various sectors can create a balanced portfolio aligning with the volatility in the market. 

2. Ignoring Portfolio Tracking

Another big mistake that investors make is ignoring to track their crypto portfolio. Just making a portfolio is not enough, it is very essential to keep up-to-date with it as well. Failure to track your crypto portfolio can result in extremely wrong decisions and missed opportunities. It can also lead to difficulties in assessing your portfolio health, leading to increased risks and imbalanced holdings. Therefore, it is recommended to keep track of your crypto portfolio, to stay informed about the gains and losses and new market trends, and to maintain your success rate. 

You may wonder how you can do it every day because sometimes life gets in the way. So to solve that, various tools and platforms provide real-time analysis. Applications like CoinGecko, CoinMarketCap, Delta, and CoinStats allow investors to track their holdings across multiple exchanges and wallets. DeFi users can opt for Zerion, which specializes in tracking staking, lending, and yield farming. 

Not tracking your crypto portfolio regularly can lead to holding underperforming assets or missing new trends. Additionally, it can leave the trader relying on emotional trading, making impulsive decisions instead of data-driven decisions. That’s why various platforms have been introduced as a relief as they help to constantly review the portfolio performance and implement smarter strategies accordingly. 

3. Failing to Rebalance

Rebalancing means adjusting your asset allocations to maintain a balanced strategy so that no single asset overshadows the other assets in the portfolio. This mostly happens due to fluctuations in the crypto market. Because of this volatility, assets can change increasingly, making an already balanced portfolio, an unbalanced and overly concentrated asset. To maintain and rebalance a crypto portfolio, an investor needs to stay updated to make the most of the current market trends.

How frequently an investor rebalances a crypto portfolio widely depends on the market conditions and risk tolerance. Long-term investors opt for quarterly or semi-annual rebalancing to minimize tax and trading fees. However, active traders prefer monthly rebalancing or whenever there is a surge in the price of the asset. There is also threshold-based rebalancing, in which the investor rebalances the holdings if the percentage goes beyond the predefined range of 5% or 10%.

4.  Emotional Trading & Lack of Strategy 

No matter how intelligently you play with crypto assets, there may come a point where you opt for emotional trading rather than a proper strategy. It’s natural but can be very dangerous if you do it all the time. Crypto assets that are led by speculation and emotional decisions can lead to poor investment. Fear of missing out (FOMO) and panic can be reasons for emotional trading. 

Some of the common consequences of emotional trading involve chasing hype coins, where the investors buy coins solely based on hyped up social media trends. Another mistake is to sell coins in a panic when the market dips. Overtrading is another mistake, which is where the investor unnecessarily buys or sells coins, leading to a lot of training fees and a haphazard situation in their crypto portfolio. 

To avoid such mistakes, it is recommended to have a strong strategy where the investor sets clear investment goals, follows fundamental and technical analysis for thorough research before investment, and opts for stop-loss orders which automate sell triggers to prevent huge losses. 

5.  Overlooking DeFi and Passive Income Opportunities

DeFi platforms share a lot of passive income opportunities for investors from time to time. People can earn a passive income without actively trading on many of them. This gives relief from solely focusing on price appreciation. 

Some of the most popular ways involve staking, where investor locks up their currencies in a blockchain network, earning rewards in return. Another way is yield farming, where decentralized exchanges are provided with liquidity for earning interest. In lending, an investor uses platforms like Aave and Compound to lend assets and earn interest in return. These are a few of the ways through which investors can earn some good passive income if explored. 

However, several companies come with some challenges. The investor may face impermanent losses, smart contract vulnerabilities, and regularity uncertainties. So be careful while you are using DeFi platforms for extra income. 

Final Thoughts

So these are the five most common mistakes that should be avoided for better crypto portfolio management. To manage a crypto profile, discipline, strategy, and regular optimization should be followed. Investors can easily and effectively navigate through the intricacies of the crypto world by avoiding these mistakes. It will maximize the returns on your assets. 

So stay informed, keep track of your investments, explore new opportunities for passive income and you will see good results. If you’re just starting, explore BlockGuard, an emerging DeFi company with a full ecosystem to help bridge the gap between traditional finance and decentralized finance.  

FAQs

Why is diversification important in a crypto portfolio?

Diversification allows you to invest in different assets and sectors, and it automatically reduces the risks of losing it all at once. A well-balanced portfolio allows the crypto portfolio to sustain itself even if one asset underperforms. 

How often should I rebalance my crypto portfolio?

Rebalancing your portfolio depends on risk management, tolerance, and market conditions. If you are an active trader, you may opt for monthly rebalancing, and if a long-term investor, then go for quarterly or bimonthly rebalancing. 

Is holding crypto long-term better than active trading?

Active trading is profitable but requires expertise, time, and risk management. On the other hand, long-term crypto reduces emotional trading and gives benefits from the overall market growth. 

Disclaimer: This article was written to provide guidance and understanding. It is not an exhaustive article and should not be taken as financial advice. Obiex will not be held liable for your investment decisions.