How to get the most out of your crypto investments

By Konstantin Boyko-Romanovsky, CEO and Founder of Allnodes.

Historically, the cryptocurrency market did not correlate with the traditional market, which helped investors diversify their investment portfolio with cryptocurrencies. However, as current global economic conditions, including high inflation, rising interest rates and stagflation, reversed market sentiment, both the stock and crypto markets took a hit. Since blockchain is an emerging technology, cryptocurrencies plunged in tandem with tech stocks, and the markets became correlated. However, this does not mean that investors should stop investing in technological developments with a temporary lack of significant diversification. On the contrary, blockchain will lead to profound changes in our daily lives, business operations, finance, real estate and healthcare, among others. Instead, investors should focus on adding strategically selected cryptoassets to their portfolios to ensure a long-term payoff.

There are three important things to keep in mind when considering the validity and value of cryptocurrencies. First is the blockchain’s network size. The more extensive the network, the more active and valuable it is. It is important to dig a little deeper to understand if the network activity is real or just a large community of coin followers without much development. Large and healthy blockchain networks deliver what are called network effects that multiply the value of a cryptocurrency. However, the size of a network alone is not enough to evaluate the validity of a given cryptoasset – sometimes smaller networks come up with winning technology.

The next thing to keep in mind when evaluating crypto assets is technology. Investors should ask questions like “What problem does this blockchain solve?” ‘Is it a unique, scalable, viable solution?’ “Are there any use cases or likely future use cases that will revolutionize how we do things?” The value is probably there if the research leads to curious and thought-provoking answers.

Finally, it is better to diversify crypto investments by theme or utility than to focus on coins in the top 10 to 15 cryptos by market capitalization. A blockchain may have a large network and a significant market capitalization, but may be technically inferior to another blockchain trying to solve identical problems. Also, a questionable coin can suddenly soar to the top due to hype, only to flop down the road due to lack of utility, development, unstable technology, or poor management and organization. With these possibilities in mind, it is best to do your research and diversify. Picking a handful of blockchain projects that solve real-world problems in different business sectors is a diversification strategy investors should consider.

Finally, a long-term investment strategy can include an asset in a crypto portfolio that provides an additional return on top of its potential price appreciation. Passive income on investments, or staking, is a process to secure Proof-of-Stake (PoS) networks with locked security. Wagering generates stake rewards analogous to interest in the same coin as the stake. Investors can compound this interest indefinitely, resulting in higher potential gains.

Thorough research is recommended before pursuing any financial investment, but it is especially important in cryptocurrencies.