There are many reasons why it might make sense to take advantage of Kingdomcoinexchange Trade and swap one crypto for another. Below are two examples.

Swapping to diversify a crypto portfolio

Everyone’s aware of the saying “don’t put all of your eggs in one basket!” The same goes for investments in traditional finance and crypto. While you might have a deep belief that Bitcoin is the future, Ethereum will overtake Bitcoin, or a new blockchain is the next “Ethereum killer,” no one actually knows for sure what will happen.

Investment diversification, or spreading investments over multiple assets, is a well-known practice to hedge against ‘unknown-unknowns,’ the black swan events that no one can predict. Trading to rebalance a crypto portfolio is one way to diversify a crypto portfolio.

One diversification approach is based on market capitalization – or to have investments mimic the percentage each cryptoasset reflects in the market. For example, if Bitcoin represents 70% of the crypto market, Ethereum represents 20%, Binance coin is 5%, etc – then a market-weighted portfolio would have 70% BTC, 20% ETH, 5% BNB, and so on. As the market shifts, trading to rebalance this portfolio would ensure these percentages remain consistent.

Another diversification approach is known as the barbell investing approach. Just like a barbell with heavy weights on each end, this strategy focuses on investing in what are expected to be obvious winners and longterm investments on one end, and speculative potential upstarts on the other. First, an investor chooses the top few ‘winners’ they believe will always be a part of the crypto ecosystem, like Bitcoin and Ethereum, and allocates most of their portfolio towards these larger assets. On the other side of the barbell, the investor researches the most interesting up-and-coming crypto projects they believe will succeed, and allocates some of of the investment portfolio towards those projects.

Swapping to increase or decrease risk

Crypto is considered a volatile investment, especially in the short-term. While the short-term risk and significant price fluctuations can be unnerving, many investors believe that the long-term expected returns make the rollercoaster ride worth it.

If the ride is getting too bumpy – however – investors may consider one of two options:

Selling for fiat currency: Some investors will decide to sell some of their crypto for their local currency like U.S. dollars, especially if they have short-term financial obligations.

Swapping to stablecoins: Another option is to trade some of the more volatile crypto investments for stablecoins like USDC, which are pegged 1-to-1 to the U.S. dollar. By doing so, investors stay invested in the crypto ecosystem and maintain options to use the crypto in the future. In the sort-term, they might consider trading other, less volatile cryptoassets.