How to Diversify Your Crypto Portfolio Effectively

Through the years, investors have constantly heard the old wisdom of “don’t put all your eggs in one basket”, which resonates with the concept of diversification. As the crypto market targets to go back to all-time highs, this saying could be the difference between turning $100 into thousands of dollars or losing it all. 

Diversification helps investors reduce risk and protects investments, especially in the digital asset space, where volatility is very high. While the act of diversification is constantly berated by Bitcoin maximalists, having a larger diversification of digital assets rather than investing in only one could provide better returns. Some crypto assets in the portfolio may fall in value, others may decline to a lesser degree, maintain value or grow in value. 

By having a mix of digital currencies in your portfolio, you will be able to limit the risks associated with a specific digital coin, ensuring higher returns and lower volatility. If you don’t depend on a single virtual currency, you will be less likely to suffer dramatic losses if your assets don’t perform as expected.

The key point is to understand the best assets to add to your portfolio. For non-risk-averse investors, small-cap to mid-cap coins offer the best risk-return (R/R) ratio, with the potential to grow several times higher. This article aims to expound on some of the best small to mid-cap crypto assets to focus on in 2024. 

How to properly diversify your crypto portfolio

Before diving into the tokens, let’s look at how you should properly invest in crypto, and build a balanced portfolio. This section strictly looks at building a small to mid-cap crypto portfolio, excluding large-cap cryptocurrencies such as Bitcoin, Ethereum and XRP. 

1. Focus on different sectors

To build a successful crypto portfolio, diversification across different sectors is crucial. As seen during the decentralized finance (DeFi) or non-fungible tokens (NFTs) upstarts, from 2018 till 2021, huge returns can be made by selecting different assets across several sectors. 

Each sector may have its own unique growth drivers and market dynamics, so having exposure to multiple sectors can mitigate risks and capture different growth opportunities.

2. Focus on the current narrative plays

The biggest growth drivers in the crypto market are the narratives and trends across different sectors. It is important to pay attention to what's hot and trending in the crypto space. Whether it's the emergence of new technology, a regulatory development, or a popular use case gaining traction, aligning your portfolio with current narrative plays can help capture upside potential. 

3. Allocate assets based on capitalization and novelty

Allocation is the next step to growing a healthy crypto portfolio. The dynamic world of crypto offers a wide range of highly innovative products and new trends emerge rapidly across the space. Investors should keep an eye on these emerging technologies. Remember early adoption of promising tokens could lead to outsized returns, as they have more room for growth compared to already mature crypto tokens. 

Finding the optimum balance between investing in large-cap tokens and small-cap tokens is also important. Large market cap tokens end to be less volatile and more established. However, smaller-cap assets offer investors a higher growth potential, but come with higher risks associated with them.

4. Have a realistic time scale

Having a clear time scale for your investments can help you choose the right assets and allocation strategy. Some assets may be better suited for short-term trading, while others may be more aligned with long-term investment goals.

5. Be patient

Finally, be patient. Prices of cryptocurrencies can be highly volatile and market narratives and sentiment changes and flactuates wildly. Avoid making impulsive decisions based on short-term price movements or FOMO (fear of missing out). Stick to your investment thesis, do your own research, and have the patience to ride out market fluctuations for the long term.

If you follow these anecdotes, you can create a stable and potentially successful portfolio. In the next section, we focus on the top coins to look at in 2024 and why they provide a nice potential to add significant returns in a crypto investor’s portfolio. 

Top 4 small-cap to mid-cap cryptocurrencies in 2024

1. Multi-chain transfer of assets (RocketX)

One of the biggest challenges across the crypto sphere is low liquidity and lack of inter-blockchain communication, as platforms work in silos. RocketX, a platform aiming for seamless transfers of digital assets across 200+ blockchains, aims to change this. The platform connects large blockchain platforms such as Bitcoin, Ethereum, Polygon and Cosmos into a single UI/API, allowing token holders to transfer crypto across any blockchain they choose. 

The platform aggregates over $100 billion in liquidity from virtually all major crypto exchanges (centralized or decentralized), offering users beat prices on crypto on-chain & cross-chain swaps or trades. Users can access this liquidity via their decentralized wallets such as Metamask, providing them with full control and ownership of their assets (self-custody). 

2. Web 3 social apps (Phaver)

Social media apps have been at the forefront of shaping our world in the past two decades or so. However, the invasive spyware that most Web 2 social apps employ to monetize their users has been a strong contention point for a change to be made. Phaver aims to create a new way of social advertising that employs a much more ethical and fair way, ensuring that users have control over and own their data. 

Secondly, Phaver also introduces gamification in social apps, allowing users to create and share valuable content with the rest of the community and earn significant rewards in the process. 

3. Rewards and loyalty programs (Shping)

Second on our list is Shping, a revolutionary Web 3 loyalty and rewards program that directly connects brands to their customers, removing any third parties. Shopping via Shping enables brands to reward customers directly for all types of product interactions. This allows brands to gain direct first-party data for precise targeting and personalized consumer engagement and marketing. On the flip side, brands can reward shoppers for their data and allow them to earn points for their next shopping spree. 

This revolutionizes online and physical shopping as brands can curate loyalty programs for their customers, influencing their shopping behaviour and converting them into loyal customers much more easily. 

4. Layer 3 P2P Network (Yellow Network)

Last but not least we select a Layer 3 platform, the latest sensation across the world of blockchain. Yellow Network is a Layer 3 P2P protocol that uses state channels to facilitate trading and settlement through smart clearing. The platform aims to offer a truly decentralized trading platform that allows participants to swap assets across different exchanges via state channels.

State channels are a Layer 2 solution that allows a group of participants to perform unlimited private transactions off-chain. This reduces the overall transaction fees and boosts the scalability of the platform. Yellow Network provides a one-stop shop for exchanges, blockchains, and trading firms, creating a network of brokerages and allowing for a more efficient trading infrastructure.

By leveraging state channels, Yellow Network also increases the privacy and security of users across the platform.