Diversification is a term people throw around all the time, in both crypto and stocks alike. And while some can deduce it's necessity automatically beforehand, others require more guidance so they can properly not-YOLO all their money away. I for one, when I first heard people mentioning diversification, instantly understood why it made sense to split your money into multiple assets rather than keep em all in one. Despite this, there are still benefits and drawbacks but what I most want to talk about is the fact itself that diversifying your portfolio should always be something people do, no matter their "goal", so let's get started.
The inspiration for this entire article was a really stupid comment I got on an random post stating:
Bitcoin and Ethereum alone beat the rest of the top 100 (crypto by market cap, in 2018), diversifying isn't for shit.
For some context, the post in question was talking about what a portfolio would look like if a person invested in the top 5/25/50/100 coin in 2018, equally.
This comment stupefied me, someones brain really thought this was a smart comment to make. Now, let me explain why this comment makes no sense.
First of all, BTC and ETH are the surefire coins currently, and they were basically the same thing back in 2018. Saying that they weren't going up in the long term was just denying the facts, so investing in them makes sense. The question here is, what were the gains made by these two? They were significant yes, and they were basically guaranteed for anyone that could hold them for a longer time period. However, the amount of space that both of these coins have to grow is significantly lesser than basically any other coin on that list baring a few exceptions. While BTC and ETH went up by around 4X their price at the start of 2018 (which is the value the article takes for all tokens). A lot of the coins we see today, went 20x, 50x and let's not get started with how lucky you were if you had DOGE by any chance (not that it's a good coin). The upside is there for both cases but the BTC/ETH bandwagon is one that only people that have no actual knowledge in crypto, follow. Not because they are bad, but because there is so much more beyond them. A great idea would be to have BTC/ETH at hand in your portfolio, always. but still have other assets as well, more on that in a bit.
The portfolio of this article is of course not one anyone should actually attempt, it is a statistical analysis and look at the possible value coins in the top 100 could have in the future. But even so, the fact that this portfolio still manages to have a gain of 70% is astonishing considering the number of coins no longer in the top 100 or the coins that went to 0/don't exist anymore. And this can once again be attributed to diversification as the coins that skyrocketed replaced a lot of the value that was lost with the "failures". A thing to note however is that this actually isn't really diversification in the strategical sense as this was still somewhat random and there was no actual research put into this portfolio, just a nose dive into the top 100.
Actual diversification uses the buyers intuition, research skills and just basic logic to conjure a portfolio that is both stable (will still net you gains even if not all of them pan out,or at the bare minimum make you lose less) and allows growth (will also have the potential to skyrocket and pay off a lot more than your initial investment). Now, this is rather simple to say but hard to put into motion, mostly because not everyone has these necessary skills. However, with the plethora of tools we all have with the internet, almost anyone can find projects they like and see potential in and research them without all that much trouble. If not that, there are certainly people that can help you with this, be they actual financial advisers, crypto experts or just a guy on Youtube you trust. There is potential everywhere.
(Haven't actually watched this video, it just connected well with my topic)
Some might diversify to get a bigger chance of hitting that rare 100x, some might do it for a stable uptrend and others might just yolo diversify... it's all a possibility. But it helps nevertheless.
Focusing on a single coin can both have serious consequences financially (especially if the coin isn't a well known one) and emotionally as the roller-coaster ride of witnessing the price changes can shock people to their core. Diversification single-handedly solves these problems and all it takes is a bit more effort and some knowledge, like this article hopefully, to push you to do it.
Thanks for reading, hope you found it helpful!