Beyond Bitcoin: Key Reasons To Diversify Your Crypto Portfolio
If you’ve already begun investing in cryptocurrencies, you’ll know doubt be interested in Bitcoin because it is both the first and largest cryptocurrency to date. In addition, it is widely regarded as the most successful cryptocurrency investment option because it leads the entire cryptocurrency market. It is also the most available cryptocurrency to invest in because Bitcoin can be purchased in multiple exchanges compared to other altcoins. Despite its benefits, investing solely in Bitcoin is not the best strategy for a sound cryptocurrency portfolio. BigONE believes that adding diversity to your investments is the best option, to maximize returns and minimize risks. A well-diversified portfolio consists of assets that perform independent of each other, so if one decreases in value others are not necessarily affected.
The advantage of other cryptocurrencies
Bitcoin is well-known for being the first cryptocurrency, and while this makes it highly successful, being the first mover has its drawbacks. Since the launch of Bitcoin in 2009, developers have created a plethora of more advanced and potentially more valuable cryptocurrencies. Even though Bitcoin was designed specifically to be a digital currency, the newer cryptocurrencies can provide faster payments at a lower cost. As an example, consider Solana (SOL) a cryptocurrency that is way faster than Bitcoin, but also compared to Ethereum for smart contracts cheaper and faster especially when supporting the booming NFT market.
Although Bitcoin pioneered blockchain technology, other cryptocurrencies that have emerged in recent years have significantly improved it. Ethereum launched its programmable blockchain, on which developers can build decentralized applications, notably DeFi applications (DApps). Some cryptocurrencies, such as Polkadot (DOT), can be used for blockchain to achieve cross-chain, sharing functions, and security purposes, a “blockchain of blockchains” as it’s been dubbed. “Polkadot (DOT) saw its price jump this week after the launch of the highly anticipated parachain auctions, which will allocate slots to projects building on the Polkadot network, were finally scheduled. The date was set through a governance vote and will kick off an important milestone for the cryptocurrency,” confirmed a report in CryptoCompare. So be sure to watch out for BigONE’s upcoming Polkadot card slot auction project, with the chance to enjoy successful parachain rewards for all bidding product throughout the auction with just a one-time participation. In addition, there’s a no lock-up pledge period of up to two years.
Cryptocurrencies with more growth potential
Because Bitcoin is the largest and most popular cryptocurrency in terms of market capitalization, its growth rate is typically slower than the more popular altcoins. While Bitcoin is volatile, it is less likely to fail because its design as a proof of work blockchain platform ensures its stable, secure, and sustainable. However, as an investor what if you are attracted to a cryptocurrency that is a high-risk, high-return investment and are interested in it? In that case, you should exercise caution to avoid selecting a less well-founded cryptocurrency for your portfolio, as they may provide you with a higher return on investment but in the long term prove to be a failure.
Rewards through staking
Staking is a straightforward method of increasing one’s cryptocurrency holdings. When you pledge cryptocurrency to the blockchain for transaction verification, you can receive rewards in exchange for your pledged cryptocurrency, just like you do with your cryptocurrency. Earning interest is the same thing. However, not every cryptocurrency, such as Bitcoin, supports staking. To verify transactions, cryptocurrencies that offer such pledges must use a system known as proof-of-stake.
Many new cryptocurrencies use proof of equity and offer higher reward rates. Cardano, for example, is a cryptocurrency (ADA) that employs a proof of stake system. Anyone who owns Cardano can pledge it and in return receive a 5% annual reward. However, because Bitcoin uses the proof of work system, to verify transactions, you cannot pledge Bitcoin to earn rewards. Proof-of-stake blockchains have a few advantages over proof-of-work blockchains. In addition, compared to Bitcoin this system uses far less energy. “Mining requires servers to be running at all times, consuming a huge amount of electricity. There is a constant ‘search’ for more Bitcoin. Proof-of-stake removes the search aspect, since the coins already exist,” according to a review in personal finance startup SoFi.
Bitcoin is not environment-friendly
Mining is the process by which Bitcoin’s proof-of-work system operates. Bitcoin miners solve complex equations using specialized machines. The first miner to solve the algorithmic equation is rewarded for verifying transactions. The issue is that mining for Bitcoin with computer-based mining machines consumes a considerable amount of energy and waste. According to data, Bitcoin’s annual energy consumption is comparable to the energy consumption of the country of Poland. All of this has resulted in Bitcoin being seen as a very unfriendly cryptocurrency to the environment. Most notably, CEO Elon Musk confirmed that Tesla Inc. would only return to allowing payment in Bitcoin once mining is done with cleaner energy. The US-based entrepreneur tweeted that he wants the Bitcoin miners to use at least 50% cleaner energy.
However, not all cryptocurrencies are the same as Bitcoin. In comparison proof-of-stake cryptocurrencies are much better for the environment because they do not rely on such energy intensive mining. Given that Bitcoin has received a lot of negative attention for its environmental impact, many more environmentally aware investors are more optimistic about the potential for ‘greener’ cryptocurrencies in the future.
BigONE’s view
It is critical to diversify your cryptocurrency portfolio, to ensure you have a balance of crypto assets that can perform well over the long term. Mainstream cryptocurrency exchanges such as BigONE, offer you a choice of more than 100 or more cryptocurrencies, giving you the options you need to create a successful portfolio. If you are purchasing or planning to purchase Bitcoin, you should also consider buying a variety of other cryptocurrencies. In summary, BigONE suggests that you consider investing a portion of your investment budget in altcoins such as Polkadot rather than putting all of it into Bitcoin.
