The practice of investment is a very speculative and risky endeavour. Prices go up and down willy-nilly, in an instant, and it can be destructive to many people’s financial accounts.
It has been around for a while now, and investors from all over the world have discovered various assets to invest their money into. We didn’t mention cryptocurrencies for nothing, as they’ve proven to be some of the most lucrative investment values among their counterparts.
But while Bitcoin and other altcoins lead to huge profits, investors still had to endure the moments of price drops and losses. Thus, they began looking for methods to mitigate losses that accompany price drops.
In a search for loss mitigation
Some have stayed away from the most speculative assets like currencies and stocks, even the cryptocurrencies themselves – sticking with commodities such as gold and silver; others have invested full-on in government bonds that prove to be more stable in the long-term; while some used a method called diversification that is probably the most suitable option for crypto traders.
Diversification is a strategy of mitigating financial risks by investing in various assets all at the same time. In the case of cryptocurrencies, it means to not stick with just Bitcoin which, to be fair, might be somewhat counterintuitive but in the long run, it’ll help avoid some unnecessary financial risks.
Why people choose concentrated portfolios
Before reviewing the mechanics behind crypto diversification and its benefits, let’s take a look at why people choose non-diversified portfolios for their investment. In 2017, we witnessed the biggest spike in Bitcoin’s price – it reached almost 20,000 US dollars. The world suddenly realized that Bitcoin is the most lucrative currency that they can ever invest in. And so did this blockchain-based financial medium became the most beloved asset for many investors.
This is a universal attitude in every other investment…