A wise-man wont put all of his eggs in one basket, so as the wise crypto trader. Imagine buying 10 altcoins of your choice e.g Bitcoin. Bitcoin Cash, Bitcoin Gold (1st Scenario) e.t.c then hold them and then all of sudden they just start falling and your you whole portfolio turns red and maybe as a result you panic and sell them. Maybe lets say you buy your Tether, DAI, USDC (2nd Scenario) and the likes then after some months you will realize that you whole portfolio is just stuck on one place and not moving but the rest of the crypto market is sky rocketing, how stressful is it?
What is Portfolio Diversification?
Diversification it is when you invest in different assets not just one e.g Bitcoin Cash, Ethereum, Dash, Tether e.t.c. On my first scenario the coins i listed are all are results of bitcoin halving and are all related to bitcoin so they always trend with the bitcoin.
Then on my second scenario i listed stable coins and as we know this coins are not volatile they maintain their price so we can say they are just safe haven, you can find refuge in stable coins when the whole market is bleeding and your money will be safe.
Volatile Alt-coins. These are the type of coins which just change value anytime, its like they are a double edged sword they can make you rich or make you poor so you have to approach them with caution. They are then grouped in different categories like DEFI, gaming, Entertainment, Privacy coins, Memes and so on.
Stable. These are coins which are not volatile, they are always calm they don't move. They can be used as collateral and they are backed by actual dollars that is why their price is not volatile, they include Tether, DAI, USDC e.t.c.
Rebase Tokens. Then we have rebase tokens which has an elastic supply and they have a certain price they should maintain, if the market is bullish and their price surpass the marked price then the supply is increased in the market so as to dilute and meet the demand e.g Ampleforth is another rebase token.
How to Diversify
Now that we know what is diversification we now want to look at how we can diversify. The first thing to do is to do a breakdown of the crypto market and choose one or 2 coins from each segment e.g on file sharing coins you chose BitTorrent and then on gaming section you select Decentraland, on memes you select Shiba Inu, on Top Privacy coins you select Zcash, NFTs etc and you do that on the rest of the categories till your portfolio is complete.
As for the stable coins you don't invest in them but you will just buy them after you sell of all your coins in the bearish market and maintain the value of your money then sell them when you are reinvesting again. I hope this was helpful to some.
This just to help your organize it so that when another coin type is not trending since it will be moving less you will benefit from those which are trending well.