How to crete a well-diversified crypto portfolio

A well-diversified portfolio is always the key to obtain a good return on bought assets given a risk level. In other words, is the key to a succesful investment. This principle also holds in the volatile cryptocurrency markets. Which currencies a trader should choose among over 2,000 coins and tokens with varying degrees of risks and characteristics? In order to answer this question the best thing to do is dividing the cryptos in four categories and choose the right percentage of them to create the portfolio.
The first coin that a crypto portfolio should have is Bitcoin, the largest cryptocurrency based on market cap which accounts for over 50% of the entire market. All the other cryptos are highly correlated to Bitcoin’s price movements. Furthermore, Bitcoin is also the default base currency of the cryptocurrency world, because it allows buyers to buy any other altcoins or tokens. This is because local cryptocurrency exchanges usually limit the amount of coins that can be purchased by local fiat money. By holding a share of 25%-30% in Bitcoin, a portfolio is well fenced from market downtrend or uptrend, as Bitcoin is simply the coin which sparks these movements.
The second crypto a trader should have in his portfolio is Ethereum, due to its great popularity. Its blockchain is the most actively developed in the industry, spearheading many innovations. Over 85% of the tokens in existence is built on the Ethereum blockchain, therefore solidifying Ethereum’s position as the most credible blockchain platform currently in the market. Along with Bitcoin, Ethereum is one of the coins that is used as a base currency. Holding Ethereum in a portfolio is important also because the more projects built on Ethereum, the higher the demand for it, which will lead to a price increase. Holding a 15% portion of portfolio in Ethereum is vital in stabilizing it.
The third component of a good crypto portfolio is made by the passive income suppliers, represented by those coins and tokens that help investors to earn money passively. These coins and tokens reward a trader with free coins just by holding on to their current coins. This is also known as interest-bearing coins. Stellar, Bankera and NEO are good examples of this class of cryptos.
Another example of passive coins is ‘free coins’ that a trader can get through airdrops and hard forks. Airdrops is a way for projects to market themselves by giving out free coins. An example could be when a cryptocurrency project issuing their native coins to holders of Ether (ETH). Hard forks, on the other hand, represent coins that are duplicated and issued by a coin that wants to deviate from an existing coin. The most well-known example is Bitcoin Cash, which separated from the main Bitcoin. In that case, holders of the original BTC would automatically get an equivalent amount of BCH for free. By holding a 25% portion of a passive income earner token, a trader is rewarded regularly for keeping faith with the brand.
Finally, a good portfolio should encompass a 35% share of stable coins, the currencies which have a hedging function. Since the cryptocurrency market is volatile, it is useful to mitigate the risk. Stablecoins such as Pax, TrueUSD, USDC, and Tether, tied to fiat currencies and shielded from the volatile prices of the cryptocurrency market, are the best to protect a portfolio and provide a trader with much-needed liquidity. It is important to always keep a share of a portfolio in stablecoins so that a trader can cash-out when needed or simply buy more cryptocurrencies when prices reduce. This action plan will also prevent massive losses in your portfolio.