But how you diversify your portfolio? 🧐
Diversification means that your portfolio should include more than one single asset. But not only that.
Generally speaking, the coin you pick for the long term should mind your portfolio diversity, for both value and growth purposes, while your portfolio’s diversity should mind picking cryptos from different sectors of the economy that aren’t fully correlated.
The problem nowadays is that all altcoins are correlated to Bitcoin, so diversification in cryptocurrencies is not truly possible. Yet as the market becomes more established and more projects are taking form, the differences in price performance will be greater.
As far as altcoins are concerned, diversification has many benefits. If a particular sector or company is correcting or crushes for any reason, your investment in other sectors can keep you in balance. In that way, you reduce the impact that volatility will have on your portfolio as a whole, or else you are less vulnerable to that single asset. Yet another benefit is that diversity gives you the opportunity to learn about different projects in the crypto market.
However, don’t be too picky, too much spreading of your capital may be harmful cause you will invest too little in the real winners. Let’s say that if you have 500 $ or less, sticking to 2 or 3 coins would be fine.
When diversifying there are many strategies to follow. One of these may depend on the solution that the project offers (such as privacy in general, staking platforms, Defi, DEXes, blockchain interoperability, etc), the industry (supply chain, gaming, medical, finance, etc), or the geographical location of the crypto asset where is based.
My kind of diversification in my portfolio, as a purse holder, follows that kind of scheme :
1) An Ethereum killer crypto
2) A privacy coin
3) An exchange specific coin
4)A coin with a large market audience, for example, social media, gaming, sports teams
5) A low-market cap coin with high potential.