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August 29, 2022

Crypto Portfolio Allocation: A Guide to Diversification

So you’ve been working hard, saving money, and stashing it away. But when it comes to investing and building long-term wealth for the next generation — now what?

There’s a lot of noise out there right now about crypto — especially Bitcoin, the different blockchains, Web3, and the future of digital currencies and assets. 

If you’re confused about what it all means and whether now is the time to “get into the crypto game,” we’re here to debunk the high-risk myths and demystify how you can build wealth by allocating some of your liquidity into a diversified crypto investment portfolio with an easy-to-use crypto app in the palm of your hand.

What’s Bitcoin and the Blockchain All About Anyways?

In the simplest definition, cryptocurrencies are no different than any other traditional form of fiat currency, except that they exist digitally instead of physically stamped or printed. 

As a result, you can’t hold cryptocurrencies (or non-fungible tokens, aka NFTs, for that matter) in your hand or stuff them into your pocket like a $10 bill.

That’s where the digital wallet comes in. Cryptocurrencies live natively on the apps that store and manage them, which means that you can take your crypto assets anywhere. 

Some apps give you access to markets to buy, sell, and trade cryptocurrencies. Some are the equivalent of a crypto-online bank account. 

Others offer the ability to invest in diversified crypto investment portfolios, and access experienced crypto asset management advice, similar to having a stock market investment manager. 

“Blockchain” is the technological infrastructure on which cryptocurrency’s digital rails run. It stores cryptocurrencies, secures them, trades them, moves them around, and validates transactions — like banks, ATM cards, statements, and the Dow Jones for dollars. 

From an information flow standpoint, think of the blockchain as a form of the internet but way smarter, more secure, more interconnected, and faster, too. 

Are All Crypto Coins the Same?

No. Just like other hard currencies like the U.S. dollar, the Euro, or the British pound, each cryptocurrency like Bitcoin (BTC), Ethereum (ETH), and Dogecoin (DOGE) is valued differently based on supply and demand, and those values are constantly in flux. 

Crypto exchanges like Coinbase, FTX, and crypto.com are the online, mobile marketplaces that enable investors and traders to buy, sell, and convert their crypto assets and cryptocurrencies (of which there are reportedly more than 20,000) — think of them like a digital NASDAQ.

Bitcoin, of course, gets all of the headlines. It was the first digital cryptocurrency introduced by Satoshi Nakamoto in 2009 and remains the most valued (and volatile) today. Altcoins are any currencies that are an alternative to Bitcoin but similarly not backed by any other asset. 

Other digital currencies are pegged to the dollar, or a “floor,” i.e. “stable coins” like Tether and USD Coin. In theory, these coins are less prone to the market volatility we’ve seen with crypto recently.

NFTs are digital “coins” like Bitcoin but represent digital ownership in a real, tangible asset like a painting or real estate rather than as a liquid digital currency. 

New coins, including NFTs, are being “minted” every week. This makes it hard to know which cryptocurrency investments are sound for the long-term, which are fads and over-valued, and which are built on sand.

Moving at the Speed of Crypto

Crypto moves fast. Since the markets are digitally native and globally linked, trading occurs 24/7. That puts a premium on the apps that take all that blockchain-managed information and deliver it in a timely, user-friendly interface, especially on mobile devices.

Crypto market swings can also be a bumpy ride. Bitcoin’s value was cut by 58% in the second quarter of 2022. For comparison, think about your Apple or Amazon stock plummeting by an equivalent amount.

Digital currency ecosystems are as fast as the infrastructure (i.e., the blockchain), apps, and markets that power them. So on this front, crypto’s speed at scale based on the increasing adoption of blockchain technology across industries — including fintech, banking, and wealth management — will only accelerate cryptocurrency’s wider adoption, evolution, and efficiency.

Translation: hold on tight. Crypto investing is just getting started. 

What’s the Difference Between Bitcoin and a Diversified Crypto Fund?

Think of owning a few Bitcoin like owning a few shares of Tesla — though Bitcoin isn’t technically “backed” by electric cars or rockets, as Bitcoin’s market value increases, your investment in dollar equivalency increases. And vice versa in the downturns. 

A diversified crypto fund is more like a mutual fund because your investment is spread across a multi-coin cryptocurrency portfolio, not just hedged on a single cryptocurrency. 

Diversified crypto funds respond more to market corrections, especially when automatically re-balanced by a monthly market cap. This diversification means you’ll avoid putting all your eggs in the Bitcoin basket since the apps allow you to trade on a dime while they’re also managed by seasoned investment pros.

For years, high-level crypto investment funds were only available to accredited investors with a net worth of $1 million and over. 

More recently, smartphone-based investment apps like ours have changed all of that, leveling the crypto investment playing field. With Ember, anyone with $10 can invest in a crypto portfolio managed by experts.

What Are Diversified Crypto Funds, and How Do They Work?

Diversified crypto funds: 

  • Are crypto-native

  • Democratize access to Web3 investing

  • Offer users the power of institutional cryptocurrency portfolio management right in their pockets

The most diversified funds invest in the leading tokens in the decentralized finance (DeFi) space. The DeFi space includes exchanges, yield products, and lending protocols. 

Access to DeFi gives investors broad exposure to Uniswap, Maker DAO, AAVE, Loopring, Yearn, Sushi, and Compound weighted by market cap and rebalanced monthly.

Other funds are more defensive, weighted against long-term quantitative market trends, and seeking to participate in the general upside of cryptocurrency markets while strategically minimizing exposure during downturns by trading into yield-bearing stablecoins. 

These funds improve risk versus long-term exposure by exiting positions quickly in downward trending markets.

“Metaverse”-based funds are bigger picture and seek to capture the upswing in Web3 virtual reality entertainment, sports, and businesses. 

These funds are typically composed of the top metaverse projects and technologies like: 

  • Axie Infinity

  • Audius

  • Decentraland (MANA)

  • Enjin

  • Illuvium

  • Rally

  • Sandbox

  • WAXE 

  • Yield Guild Games

They are also weighted by market cap and rebalanced monthly.

Are Diversified Crypto Funds a Safe and Secure Place To Invest My Money?

Blockchain technology creates an immutable record of every step along a “chain” of financial transactions through smart contracts and distributed ledgers. So, it’s almost impossible to fake or “hack” crypto trades or investments for fraud to occur. 

The leading digital wallet technologies also offer state-of-the-art security, making account management simple by utilizing fingerprint and face ID while offering 2-step verification and multi-factor authentication as an added security layer.

With 2-step verification enabled, you must provide a unique verification code sent to your phone in addition to your username and password when logging in — an unrecognized device or unknown phone number will be denied account access.

The bottom line is: You’re no more at risk investing and trading in cryptocurrencies on a mobile app or exchange than on an online Schwab platform swapping stocks. 

Only Work With the Best

Investing in crypto can be volatile. Like every currency or security, investing carries risk. That’s why expertise and experience matter. 

The best-diversified crypto fund managers are cycle-tested and have previously survived the crypto downturns and market volatility, and they’re right here at Ember Fund. 

Our team includes crypto analysts, hackers, technologists, and designers who have cut their teeth at Google, Microsoft, TikTok, Binance, JP Morgan, and multi-billion dollar hedge funds. 

Since portfolio allocation into crypto is relatively new, we value your engagement, want your business, and are willing to earn it. We even offer a Learn-to-Earn reward program that earns you free Bitcoin when you log into the Ember Fund app and read a daily educational snippet about cryptocurrencies and crypto markets.

We combine industry-leading technology, deep crypto investing experience, and broad asset management expertise under one roof in a single platform.

Want to learn more about cryptocurrency portfolio allocation and crypto investing? Explore the Ember Fund blog here, or Download the Ember Fund App here and invest in a crypto portfolio of your choice with just $10.

Sources

What Is Cryptocurrency? | Forbes Advisor

Making sense of bitcoin, cryptocurrency, and blockchain | PWC

All Cryptocurrencies | CoinMarketCap

Bitcoin posts its worst quarter in more than a decade | CNBC

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