Crypto Asset Diversification Vs. All Eggs in One Basket

What’s an effective way to diversify a crypto portfolio? Are crypto assets able to be diversified at all? These are the questions that many “Hodlers” have been asking. The slow bleed of Bitcoin (BTC) and other major cryptocurrencies prices has been challenging investors and their holding powers. Despite BTC still able to maintain its 112% year-to-date gains so far — thanks to the massive bull run in the second quarter and the recent China-inspired rally — the recent price correction could pressure some of the latecomers. In this article, we will study some possible diversification options for crypto portfolios from a Hodler’s perspective — i.e., diversifying investment by allocating capital into various crypto assets using long-only strategies. We will also explore how altcoins and stablecoins could balance a portfolio.

Why diversify?

In the traditional world of finance, the performance of different assets could vary under different market conditions. For example, real estate investment trusts could outperform general equities in a turbulence market, and defensive stocks could disappoint investors when the appetite for risk is heightened. That’s when diversification comes in. The main purpose of exposure to different asset classes is to balance risk and return in a portfolio.

In the cryptocurrency space, diversification could also be one of the ways to manage risk exposure. However, some would argue that it is impossible to diversify a crypto portfolio due to the fact that major altcoins are highly correlated with Bitcoin. However, with a carefully selected basket of altcoins — in conjunction with stablecoins — investors could able to navigate the market more effectively with manageable risk.

Concentration vs. diversification

There has always been a debate about putting all your eggs in one basket. While in some cases concentrating on only one asset could maximize profitability, this also maximizes the risk exposure. On top of that, a…

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