Cryptocurrencies have emerged as one of the most popular investment drivers in the last few years. From established digital currencies like BTC and ETH to relatively new-to-the-market coins such as LINK and AAVE, traders are relying on the modern asset class to build their investment portfolios.

Having said that, it should be kept in mind that cryptocurrencies, with the exception of stablecoins, tend to be substantially more volatile as compared to traditional assets including stocks, commodities, and forex. This is exactly why it is important to ensure that you diversify your trades and avoid putting all of your eggs in one basket when investing in digital currencies.

Diversification of Portfolio - What Does It Mean?

Diversification is one of the most popular risk management approaches that propose instead of investing all of your capital in a single coin, you should strategically spread it across a variety of cryptocurrencies. When you have a diverse investment portfolio, it comprises different coins and virtual currencies so you don't become vulnerable to market fluctuations and price volatility.

The primary idea behind this risk management strategy is that when you create a diversified portfolio that contains different types of assets, it has better odds of leading to higher returns in the long run. It also reduces the risk of being fully invested in only a single asset. That's the reason in the crypto investment world it is often said that you shouldn't put all of your eggs in one basket.

How Does Diversification Work?

When the price of one coin drops, diversification may help you to minimise your financial loss and even help you make money. Some coins will be affected by the price reduction, but not all of them will be affected at once as it is statistically improbable. If the price of one or more cryptocurrencies drops, the others will stay steady or even increase in value, giving you a financial safety net. Even if you lose some money, the overall impact will be favourable or neutral, and you'll still have most of your original investment.

  • Non-Diversified Investment

Imagine the price of Cryptocurrency A is €100 per coin and you invest €5,000. There is no diversity in your portfolio now that you've placed all of your money in one currency. It is now possible to lose €2,000 if the price of Cryptocurrency A drops by 40% and falls to €60. To get your money back, you must wait and see whether prices increase in the future or sell at the current price to limit any further losses.

  • Diversified Investment

Imagine the price of Cryptocurrency A and Cryptocurrency B are €100 and €50 respectively and you invest €5,000 equally in both. It means that you have invested €2,500 in each coin. If the price of Cryptocurrency A drops by 40%, you will only lose €1,000, rather than losing €2,000 as before. On the other hand, even a 20% increase in the price of Cryptocurrency B will net you €500 making your net loss only €500. 

Just by adding one more coin to your portfolio, you have reduced your loss margin by 75%. Apart from that, you now have a chance to wait out the market as even if one coin continues to decline in value, the other digital currencies can still give you a net profit. This is the reason why having 5 to 15 cryptocurrencies in your portfolio is a much better choice than investing all your money in a single token.

Built-In Portfolio Diversification with Coinpanion

Coinpanion enables you to invest in pre-determined portfolios with varying degrees of risk appetite. There are five different types of portfolios containing 6 to 14 cryptocurrencies for diversification.

This portfolio is for disciplined investors who want to avoid market volatility at all costs. When you invest in this portfolio, 80% of your money goes towards USDC which is a stablecoin backed by a fiat currency such as USD. The rest of the capital is spread across numerous coins including BTC, ETH, MATIC, XLM, AAVE, ADA, DOT, and more.

As the name suggests, this portfolio attempts to create a balance between risk management and profitability. 40% of your capital is invested in USDC while the remainder 60% goes towards a wide range of digital currencies including BTC and ETH.

When you are not worried about the crypto market's volatility, this portfolio provides you with the opportunity to take all the risk. 100% of your capital is invested in cryptocurrencies with the potential of a high return. 

This portfolio has been specially created for those investors who want to acquire a financial stake in Metaverse. Your capital is spread across different digital currencies including ETH, MATIC, MANA, ENJ, SAND, and AXS - basically, all the coins that empower virtual reality and NFT infrastructure.

This portfolio has been specially created for those investors who want to acquire a financial stake in the open financial ecosystem, known as DeFi. Your capital is spread across different digital projects in the industry including smart contract protocols, lending platforms as well as decentralised exchanges.

Final Word

A contemporary crypto investor must diversify his or her portfolio to ensure adequate risk management. However, you may find it difficult to build and keep track of your diverse portfolios on a frequent basis. When it comes to achieving your investment goals and objectives, Coinpanion has a variety of crypto investment portfolios with built-in diversification so you can easily select one that aligns with your expectations.

FAQ

How does Coinpanion work?
We help you to invest in the cryptocurrency market like a professional. Simply select a smart portfolio and get started straight away.

We help you to invest in the cryptocurrency market like a professional. Simply select a smart portfolio and get started straight away.

How much does Coinpanion charge?
If you invest in a portfolio (and not in a single cryptocurrency), a service fee of 2% per year is charged. The fees can be viewed at any time in your transaction history.

If you invest in a portfolio (and not in a single cryptocurrency), a service fee of 2% per year is charged. The fees can be viewed at any time in your transaction history.

Who can invest?
You need to be over 18 and live in a country that is part of the European Union or the European Economic Area (Switzerland, Liechtenstein, Norway, Iceland).

You need to be over 18 and live in a country that is part of the European Union or the European Economic Area (Switzerland, Liechtenstein, Norway, Iceland).

Can companies invest?
Yes, we already have several corporate clients. The minimum investment for corporate accounts is €25.000. Please send us a request to support@coinpanion.com and we will take care of it.

Yes, we already have a large number of corporate clients. The minimum investment for corporate accounts is €25.000. Please send us a request to support@coinpanion.com and we will help your company along the way.

What is the minimum deposit?
The minimum deposit is €50.

The minimum deposit is €50.

How long does it usually take for my transfer to arrive?
That depends on your bank. On average, a transfer takes 1-3 working days.

That depends on your bank. On average, a transfer takes 1-3 working days.

How can I set up a savings plan?
After you have transferred your first deposit, you can easily set up a savings plan in your dashboard. The minimum monthly investment is €10.

After you have transferred your first deposit, you can easily set up a savings plan in your dashboard. The minimum monthly investment is €10.

When will the start bonus or referral bonus be credited?
The start and referral bonus will be credited within 48 hours after receipt of payment.

The start and referral bonus will be credited within 48 hours after receipt of payment.

What happens to my deposits and withdrawals?
Deposits and withdrawals are carried out via third-party providers who take care of the purchase and custody of the cryptocurrencies. Coinpanion takes care of the rest.

Deposits and withdrawals are carried out via third-party providers who take care of the purchase and custody of the cryptocurrencies. Coinpanion takes care of the rest.

How can I deposit money?
We have several payment options for you. You can deposit money with your debit card, credit card and with a direct bank transfer.

We have several payment options for you. You can deposit money with your debit card, credit card and with a direct bank transfer.

How/when can I withdraw?
You can withdraw at any time on your dashboard.

You can withdraw at any time on your dashboard.

Is there a minimum term?
No, you can withdraw at any time.

No, you can withdraw at any time.

In which currencies can I withdraw?
Withdrawals are possible at any time and are currently exclusively in euros.

Withdrawals are possible at any time and are currently exclusively in euros.

What is the difference between the Coinpanion portfolios?
Each portfolio has a unique allocation. You can find out more here.

Each portfolio has a unique allocation. You can find out more here.

Which cryptocurrencies are included in the portfolios?
Coinpanion offers risk and theme-based portfolios. Depending on the portfolio you choose, other cryptocurrencies are included. Learn more about it here.

Coinpanion offers risk and theme-based portfolios. Depending on the portfolio you choose, other cryptocurrencies are included. Learn more about it here.

How is the trading of the portfolios handled?
The cryptocurrencies are traded according to the portfolio's underlying strategy. You can also adjust this via the settings. All cryptocurrencies are traded via third-party providers. You can find more information in the terms and conditions.

The cryptocurrencies are traded according to the portfolio's underlying strategy. You can also adjust this via the settings. All cryptocurrencies are traded via third-party providers. You can find more information in the terms and conditions.

Can I invest in more than one Portfolio?
Yes, you can invest in multiple portfolios at the same time.

Yes, you can invest in multiple portfolios at the same time.

How can I take care of the taxation?
Generally, taxation depends on the legal situation in your country. Coinpanion gives you the possibility to download all transactions directly on the platform. In addition, we have a partnership with the cryptocurrency tax company Blockpit. Through them, we can offer you a complete tax report. In cooperation with Blockpit, Coinpanion offers you a complete tax report free of charge for download.

Generally, taxation depends on the legal situation in your country. Coinpanion gives you the possibility to download all transactions directly on the platform. In addition, we have a partnership with the cryptocurrency tax company Blockpit. Through them, we can offer you a complete tax report. In cooperation with Blockpit, Coinpanion offers you a complete tax report free of charge for download.