Token baskets allow crypto investors to purchase a digital asset basket containing several coins and tokens in the form of a single token. Crypto basket trading is important for investors looking to diversify their portfolios and manage risk.
This guide will explain crypto basket trading and how to invest in token baskets.
What Is Crypto Basket Trading?
Crypto basket trading involves investing in a collection of similarly themed digital assets bundled up into a single token to simplify crypto portfolio allocation.
The digital assets are grouped into an investment bundle according to a particular theme. The themes can classify assets based on utility, type of project, or market capitalization. For instance, the Blue token (BLUE) gives investors exposure to a basket representing the top ten cryptocurrencies by market capitalization and other high-performing assets.
Most crypto baskets are curated by experts on platforms offering them based on themes such as DeFi, metaverse, ERC-20 tokens, NFTs, etc.
Token baskets are similar to index funds. An index fund is a type of mutual fund or exchange-traded fund (EFT) that tracks a market index typically consisting of stocks and bonds. When investors put money in an index fund, they are buying into a portfolio of traditional securities that mirrors the performance of a market index.
That said, while most crypto baskets use a single token for trading, the structure and deployment of each token basket are different across platforms.
Here are examples of popular tokens used in basket trading.
How to Invest in Token Baskets
Investing in crypto token baskets works essentially like purchasing any other type of crypto asset on an exchange or a digital asset investment platform.
- You open an account;
- deposit funds or connect your wallet;
- and purchase the crypto basket token.
However, before purchasing crypto basket tokens, a few facts must be considered.
- Researching and selecting suitable crypto basket tokens – Investors need to identify token baskets whose performance can be independently tracked on exchanges. They can also analyze data points, such as the market cap, liquidity, trading volume, and tokenomics, to ensure they are choosing a high-quality crypto basket token.
- Finding reputable platforms and exchanges – It’s important to select tokens that are issued by and can be traded on reputable platforms and exchanges to ensure that there is sufficient transparency around and liquidity for the crypto basket token.
- Keeping an eye on costs – Before investing in token baskets, knowing what fees will apply is important to ensure they don’t eat too much into potential returns.
Benefits And Drawbacks of Crypto Basket Trading
- Diversification of investment portfolio – Crypto basket trading relieves investors of the process of researching and building a crypto portfolio from scratch. Instead, they can simply invest in a token basket that aligns with their investment goals.
- Mitigates risks associated with individual cryptocurrency investments – Investing in individual tokens exposes investors to potential losses in the event of extreme volatility. However, holding a token basket ensures that if one of the tokens in a basket performs poorly, the others may offset any losses.
- Potential for higher returns through exposure to different tokens – Token baskets are curated by experienced crypto traders who create them after extensive research on a wide range of assets, taking market conditions and trends into account. Consequently, investors who put money in token baskets may have a higher chance of making money than investors who pick assets themselves.
- The volatility of the cryptocurrency market – Instability in the crypto market can expose investors to short-term losses on their token baskets since several cryptos can simultaneously be impacted.
- Security risks and concerns – Crypto baskets may have vulnerabilities in the underlying protocols that can be exploited by hackers to steal funds.
- Potential for fraudulent token baskets – Malicious actors can prop up crypto baskets that end up defrauding investors of their money. Investors are advised to put money in token baskets backed by reputable companies.
Crypto basket trading aims to simplify crypto diversification by allowing investors to track several individual assets in a single basket. Investors can automatically diversify their portfolios, minimize risk, and increase their chances for higher returns.
While crypto baskets are an emerging trend in the crypto markets, there is potential for this product among newcomers and retail investors looking for a less complicated way to build a crypto portfolio.