Course 3 Review: Building Your Digital Portfolio

Introduction

In our past six lessons of the course, we reviewed everything a beginner cryptocurrency investor needs to know about diversified cryptocurrency portfolios. From basic investment principles to complex regulatory considerations, you’ll learn each step to build a high-value portfolio. 

Diversification is an essential investment strategy, especially for a dynamic digital asset like cryptocurrency where volatility is high. This course aimed to provide practical, actionable tips to craft a portfolio that minimizes risk while maximizing returns strategically; no matter your financial goals. Let’s review and summarize each course lesson’s most crucial to ensure you don’t miss a thing!

Course 3.1: Introduction to Portfolio Diversification 

Key Takeaways: 

• Diversification helps investors avoid major losses due to volatility, acting as a safety net for your funds.
• There are multiple crypto assets you can use to categorize your crypto investments, including payment tokens, utility tokens, security tokens, governance tokens, and stablecoins.
• Finding the right balance of diversification between each asset depends on your financial goals; namely your risk tolerance. The three main risk levels are conservative (low), moderate (balanced), and aggressive (high). 

In this introductory lesson, we explain how crucial diversification is in the cryptocurrency investment world! Without dividing your investments between multiple crypto types, asset classes, and risk levels, you basically put all your eggs in one basket. And when the market fluctuates, your basket may turn upside-down. Before deciding how to allocate your funds between investments, make sure to consider your risk tolerance, and financial goals, and research your crypto of interest. 

Course 3.2: Project Evaluation and Due Diligence

Key Takeaways; 

• Crypto projects are incredibly varied. Research them thoroughly to determine their risk level and potential returns, and how they may impact your portfolio. 
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• There are multiple factors to consider, including the project’s tokenomics, use cases, adoption potential, development team, and more. Investors should read the project’s white paper (and any other documents explaining its use case), dive into its price and performance history, and research each member of its developer team.
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• Simultaneously, investors should keep an eye out for red flags that could signal the project is a scam, or engaging in fraudulent activity. 

Before adding a new crypto project to your portfolio, investors should do a deep dive into the technology and planning behind it. Here are a few terms to get familiar with:

• ‍Tokenomics: The economic model governing a cryptocurrency project, encompassing factors such as token distribution, utility, and value proposition. 
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• White Paper: A detailed document outlining the concept, technology, and goals of a cryptocurrency project, often provided by its developer team before launch.
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• ‍‍Use Case: The intended purpose or function of a cryptocurrency token within its project's ecosystem, which is outlined in its white paper.

Possible red flags to watch out for include:

• ‍Unrealistic promises, such as guaranteeing high returns on your investment.

• ‍Excessive marketing hype, aimed at attracting as many investors as possible rather than proving use case and functionality. 

• ‍Unclear or vague information about the project’s technology and use, proving its value.

• ‍An anonymous team, who can’t demonstrate their experience in the industry (and can avoid consequences if the project fails).

Course 3.3: Building A Diversified Portfolio

Key Takeaways:

• There are multiple strategies to allocate your funds between cryptocurrencies and build a diversified portfolio. These include dividing between asset classes, and risk levels, and including crypto-related assets. 
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• Once you create your diversified portfolio, you can continuously rebalance the portfolio as market prices change for each asset. This manages your risk, adapting to new marketing conditions. 

It’s best to consider multiple allocation strategies The traditional investment model includes splitting your funds equally between multiple well-known, stable assets (examples in crypto are Bitcoin and Ethereum). You can also allocate based on the crypto’s unique characteristics. Balancing your funds to ensure you stay within your risk tolerance level is also crucial. 

You can assess a crypto’s market cap, divided into large, mid, and small. Finally, you can also consider including Web3 projects that utilize crypto-related technology, like NFTs or stablecoins. You should periodically check in on your portfolio, assess which assets have changed in value, and reallocate your funds accordingly. We recommend following a quarterly or bi-annual rebalancing schedule!

Course 3.4: Crypto Portfolio Diversification - Secure Storage Strategies

Key Takeaways:

• Secure storage is incredibly important with digital assets like cryptocurrency. Investors use digital wallets to store their crypto, which they have total control and autonomy over. 
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• There are two main types of digital wallets you can choose from; hot and cold. Hot wallets are hosted online (like on an app or software program) and have a 24/7 connection to the Internet. Cold wallets are stored on hardware devices.
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• Investors should use secure methods to store their private keys and seed phrases for their digital wallets and avoid risky methods, such as password apps/extensions, or a digital document. 
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• Investors should also use safety practices every time they check their accounts or trade crypto, by enabling 2FA, backing up their wallet data, and only using protected Internet connections. 
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• Lastly, it’s crucial to keep updated on common crypto scams. Malicious actors can use phishing techniques, pump-and-dump schemes, and even emotional manipulation to steal your personal data or crypto.

Course 3.5: Crypto Portfolio Management Tools and Resources

Key Takeaways: 

• Once you have established your diversified portfolio, you’re ready to consider management strategies! To optimize returns and keep risk low, regular tracking and reallocation are necessary. You can use a range of tools to manage your portfolio. 
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• Crypto tracking apps display accurate, real-time insights into market performance. 

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• Risk management tools like Walbi Lighthouse can utilize AI and risk analysis frameworks to ensure you’re making the right moves. They can also keep you compliant with evolving tax requirements and crypto regulations. 

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• Portfolio management tools provide a consolidated overview of performance across your assets and digital wallets. 
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• Crypto is constantly changing, with new technology developments, regulatory impositions, and innovative projects launching. Stay updated on these changes by subscribing to trustworthy news sources.

Course 3.6: Legal & Regulatory Considerations for Crypto Investors

Key Takeaways:

• Crypto is a relatively new digital asset, and its quick growth and rising popularity mean that regulations and tax requirements widely differ around the world. If you aren’t aware of the legalities surrounding your crypto investments, you can land in hot water. 
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• In many countries (like the U.S., Portugal, Spain, Russia, Japan, and more) crypto is considered property, securities, or intangible assets and is subject to taxation. The exact rates and tax declaration processes differ for each region. 
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• When it comes to regulatory framework, countries fall somewhere between a progressive and strict approach. As an example, China has a total ban, South Korea bans private coins, but the U.S. embraces crypto as legitimate property.
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• Always check the current regulations, taxes, and crypto laws in your country, and consider asking a financial advisor to ensure you’re compliant. 
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• Investing in privacy coins, which are completely focused on protecting user privacy with advanced cryptographic technology, is a great tactic to diversify your portfolio while enhancing your privacy.

Overall Review

This course goes through each fundamental step, strategy, and consideration beginner investors need to develop a high-value diversified portfolio full of crypto investments. It’s an absolutely crucial investment principle that acts as a risk management method while maximizing your returns!

From asset allocation tactics to best practices for safe investing, to specific regulatory changes - we’ve covered it all. Now that you’ve completed the course, get acquainted with the strategies we’ve explained by implementing them into your own crypto investments. We recommend you continue your journey by enrolling in further crypto learning programs, speaking to financial experts, and joining the crypto community.