Crypto portfolio diversification
Crypto portfolio diversification refers to the distribution of investor funds across different assets. This method helps balance risks and minimize potential losses.
How to diversify your portfolio?
Don’t put all your eggs in one basket is a well-known proverb that best describes the principle of diversification. It warns that it makes no sense to risk everything by committing to one plan or idea.
The same applies to an investment portfolio that contains one asset type or, even worse, the only financial instrument. In the event of its collapse, an investor will suffer heavy losses.
To protect yourself from dramatic losses, you need to spread your investments across multiple coins of different types. This will help you evenly distribute risks in your portfolio and not sink deeper into the red in case one of the tokens suddenly drops sharply.
Currently, there are over 18,000 different digital assets in the world. Nevertheless, all cryptocurrencies can be roughly divided into 3 main groups:
- Coins serving as a store of value (Bitcoin, Ripple, etc.)
- Infrastructure tokens (Ethereum, Solana, etc.)
- Assets of crypto apps (Uniswap, Compound, etc.).
To properly diversify your portfolio, it is enough to add only a few representatives from each group to it. They may include the most popular tokens or coins with the highest market cap or liquidity.
However, keep in mind that the assets you choose should have different risk profiles and a low correlation to each other. The latter is the key to successful portfolio diversification.
If you invest in tokens highly dependent on the bitcoin rate, and in BTC itself, such a distribution of funds will make little sense. In case of a collapse in the main cryptocurrency, the entire portfolio will sink.
Также есть еще один важный нюанс: корреляция не является стабильным показателем и может со временем изменяться. Поэтому трейдерам нужно регулярно следить за рынком, переоценивать свои вложения и в случае необходимости вносить коррективы в портфель.
