Building a cryptocurrency portfolio is as important as following a trading strategy. There are infinite possibilities and combinations how to do it, each with advantages and disadvantages. In this article we will teach you how to do cryptocurrency portfolio allocation the right way.

To begin with, it is important to understand the concept of Diversification. We always say, just like a Stop Loss, Diversification is your ally and will serve you a great deal when the market is more volatile than normal. Start with allocating your cryptocurrency holdings into different tier levels:

Cryptocurrency Portfolio Allocation

Tier 1 – Established cryptocurrency that have significant usage and adoption. We feel both Bitcoin and Ethereum are Tier 1 cryptocurrencies. (Tier allocation recommendation 40% —100%)

Tier 2 – Established use cases with a significant customer base. Examples include Binance Coin, Uniswap, Chainlink and Aave. (10% – 50%)

Tier 3 – Established use case with a customer base that is growing. Think of gaming, metaverse, and recently sporting bets. (0 – 30%)

Tier 4 – Established use case without a regular customer base. These are your experiment, your bets. Some may pan out, some not. (0 – 10%)

Tier Junk – 0%

As you can see, we allocated 0% to Tier Junk. In there you can imagine potential scam coins that don’t start with any clear roadmap or value or looks significantly similar to a thousand other ones. Don’t spend time on it.

And now let’s take a look at sample portfolios and how to build a cryptocurrency portfolio based on risk management factors.

Sample Cryptocurrency Portfolios

Conservative: 100% in Tier 1

Growth with safety: Tier 1: 50%, Tier 2: 30%, Tier 3: 20%

Aggressive: 40%, Tier 2: 30%, Tier 3: 20%, Tier 4: 10%

Hypothetical Portfolio – Many recommend having a high allocation of both Bitcoin and Ethereum with a broad range of other cryptocurrencies with appeal.

Bitcoin 35%, Ethereum 30%, Binance Coin 10%, Uniswap 10%, ChainLink 5%, Solana 5%, AAVE 5%. (This is a sample, not a recommendation – Best Practice is to perform your own research)

Ultimately, the way to go is to following your investment and trading strategy as we also detail in Best Practices for trading Cryptocurrencies 2022 and, Key mistakes to avoid when trading Cryptocurrencies 2022. Every trader is different, and you know best how much risk you are willing to take.