Is diversification into different coins really a good advice for Newbies?

[lobat999]

I agree that considering the degree of correlation of assets is a great way to diversify a crypto portfolio and I must admit that altcoins have a higher degree of correlation with Bitcoin because almost all of them are paired together with Bitcoin on crypto markets.

Do you mean trading pairs like ETH/BTC? I don't think that defines correlation.

There are many variables and factors that may affect the degree of correlation between Bitcoin and altcoin and I believe Bitcoin trading pairs is one example, as it is tied up to BTC as the base currency that have a value correlation with the price of any altcoin but it doesn't necessarily defines correlation. Of course, there is also the possibility of deviation. Imho.

[1714079677]

1714079677

[desticy]

The "diversify your investments" advice mostly came from the 2017 bull run as far as I remember, as almost everything is going up in price anyway. Obviously, that certain advice didn't work well if your diversification is with other coins/tokens rather than what it should actually be- with other assets in other industries and sectors(stocks, index funds, real estate, businesses, etc).

For some reason though, even with the very bad past results, I'm sometimes still hearing the "diversify with other coins" advice.

10/10

Totally agree with you. Diversification within the framework of the cryptocurrency market alone makes little sense, by and large, all movements in the cryptocurrency market occur synchronously.
I would consider diversification in the cryptocurrency market only in two-part format, one is Bitcoin, the second is altcoin, for example, Ethereum, in a ratio of 70 to 30, this will be enough. T
rue diversification begins only when you place your assets in various unrelated areas, or related to each other only indirectly.

[1miau]

up!

Short reminder why diversification away from Bitcoin migh increase your risk:


Best proof: Altcoins "Terra Luna", where "Terra USD" is based on, did completely collapse recently.
Even 2 weeks ago "Terra Luna" was at 82 USD at place 8 according to Coinmarketcap:



But now, after a few days of heavy losses, "Terra Luna" is only trading below 0.3 Cent. 






Yes, Altcoins can offer huge upside potential but Altcoins are also very risky:

If you take the Coinmarketcap 100 as a comparison to the S&P 100, you will quickly realize that there are tons of shitcoins without concept, even if they are the TOP 100 out of more than 10,000 Altcoins. Even in the TOP 10, at least 50% can be described as shitcoins, if some of them are not even scams.


In conclusion, a large part of Bitcoin in your portfolio is less speculative, less risky and less work. The more Altcoins you buy instead and reducing your percentage of Bitcoin you hold, the more speculative, riskier and more work your investment will get.

Buying Bitcoin means buying a trusted and proven asset. 
Buying Altcoins means gambling to some degree.

[pooya87]

Yes, Altcoins can offer huge upside potential but Altcoins are also very risky:

It is worth noting that the risks altcoins have is not just because they are alt-coins but because they lack real utility. Unfortunately all altcoins (except a handful like Monero) don't offer any real utilities that could be used in real world or they offer fake utilities like ethereum and that makes them lack real value hence their price always dumps in the long run.

[libert19]

Diversification is necessary but in the same field? It's stupid. Crypto market depends heavily on Bitcoin and other tokens depends on the chain they were created on.

Real diversification includes - fiat, metals, real estate, etc. But most people don't have that much capital so you are better off having savings in fiat and crypto. So you can live off it while crypto is melting.

[Coin_trader]

Diversification is necessary but in the same field? It's stupid. Crypto market depends heavily on Bitcoin and other tokens depends on the chain they were created on.

Real diversification includes - fiat, metals, real estate, etc. But most people don't have that much capital so you are better off having savings in fiat and crypto. So you can live off it while crypto is melting.

Crypto market has different field too such as Blockahin, DeFi, NFTm Stablecoins, etc.  "fiat, metals, real estate, etc" can be classified as an asset and moving with same direction base on the global economy. Newbie is just not using diversification properly and just choosing random shit coin with random amount/percentage of there asset. true diversification requires a rule book that will determine the risk factor each coin and how much percentage that only allowed to invest with that risk involved. Crypto traders/newbie are doing a uneducated diversification that's why it always result to disaster.

Altcoins can recover much faster to Bitcoin. This can immediately compensate the lose during the bear season if user just hold until the point that they are on profit. Weak hands + BS Diversification will surely result to current crypto traders right now.

[o_e_l_e_o]

Diversification is necessary but in the same field? It's stupid.

This. When bitcoin goes up, altcoins goes up. When bitcoin goes down, altcoins go down even more. Diversification as a hedge against risk means buying different assets which are not intrinsically linked to each other and don't follow the same trends. There is no point trying to reduce your risk by putting money in a bunch of scammy altcoins which will only dump even harder than bitcoin does.

Even in the TOP 10, at least 50% can be described as shitcoins, if some of them are not even scams.

Here's a fun experiment: Go to the historical snapshots page on CoinMarketCap (https://coinmarketcap.com/historical/), and go back a year, two years, three years, and take a look at some of the top 10 coins. Then see where they are now. Some examples which were shilled heavily when they were at their peak, and their rankings as of today:
BCash - 23
Stellar - 26
EOS - 48
BSV - 57
IOTA - 58
NEO - 68
Dash - 76
NEM - 88
LUNA - 209

What's been constant the entire time?

Bitcoin - 1

Spin forward another 3 years and I'm certain the likes of Solana and other top ten nonsense will be several dozen places down the ranks. And Bitcoin will still be number 1.

[Rikafip]

Altcoins can recover much faster to Bitcoin. This can immediately compensate the lose during the bear season if user just hold until the point that they are on profit.

I beg to disagree and that's one of the most common mistakes, hodling altcoin for the longer period of time (especially during bear market) hoping that one day they will be in the profit. In reality, majority of them end up being bagholders of worthless shitcoins.

The right course of action in the vast majority of cases is to sell altcoins with the loss but many don't have the guts to do it and they end up in a much bigger loss eventually.

[libert19]

Diversification is necessary but in the same field? It's stupid. Crypto market depends heavily on Bitcoin and other tokens depends on the chain they were created on.

Real diversification includes - fiat, metals, real estate, etc. But most people don't have that much capital so you are better off having savings in fiat and crypto. So you can live off it while crypto is melting.

Crypto market has different field too such as Blockahin, DeFi, NFTm Stablecoins, etc. 

Didn't defi, nfts fall down in recent meltdown? What happened to 'Stable coin' UST?

"fiat, metals, real estate, etc" can be classified as an asset and moving with same direction base on the global economy.

Yes but you can use these assets as roof over your head, or exchange for tangible things in case hell breaks down.

[Judy Bishop]

I totally agree with the post. Crypto currency market is different from the stock market and there is no need for too much diversification here. It is important to invest in currencies that hold a future value in order to be safe. Bitcoin, Ethereum and doge coins are good for investment and have a strong presence in the crypto market. It is better to stick to these ones rather than diversifying your investment with shit coins that hold little to no value. 

[Doan9269]

Diversification is necessary but in the same field? It's stupid. Crypto market depends heavily on Bitcoin and other tokens depends on the chain they were created on.

I will like to go along with the idea being bad for a newbie, at least for a start one has to get the best and quality knowledge of the beauty in crypto by starting with the first and most reliable coin (bitcoin) before dabbling into investing on other coins which could turn shitcoin within a little space of time and this may give a bad impression to such newbie even when later advise to invest in bitcoin, that's why i see the need for every beginners to have a start with bitcoin and not until they are good and bold enough with crypto experience they may choose to diversify but not 100% meaning they may invest in other coins they have confidence in their reputation along side with bitcoin but it will bebtoo risky to dump bitcoin for other altcoins.

[KingsDen]

Diversification is necessary but in the same field? It's stupid.

This. When bitcoin goes up, altcoins goes up. When bitcoin goes down, altcoins go down even more. Diversification as a hedge against risk means buying different assets which are not intrinsically linked to each other and don't follow the same trends. There is no point trying to reduce your risk by putting money in a bunch of scammy altcoins which will only dump even harder than bitcoin does.

Once upon a time, a man built a house(five rooms) in a swampy area, during the dry season, he lives comfortably with his family but during the season of rain, the whole building would be flooded.
The man wanted a way to avoid the flood or mitigate the severity. He told his children that they should decongest the sitting room by taking the house documents to room 4, television to room 3, take the beds to room 5, the sofa to room 1 and they will sleep in room 2. By this, if the flood hits the building they may be lucky that the flood may only hit two rooms out of the five and the properties in the other three rooms would be safe.
Well, the idea of the man above is the idea of diversification of some people in the world of cryptocurrencies.

[LoyceV]

What's been constant the entire time?

Bitcoin - 1

One of the tricky things to consider is that even though Bitcoin's market cap has been falling for a while, that doesn't mean individual altcoins gained market cap. There's a continuous inflow of newly created money grabbing schemes altcoins that follow the old pump and dump scheme. The top 10 places are of course filled with other altcoins, and that's why people keep jumping in. Until it implodes and is repeated in the next one. Some people earn a lot of money, most people lose a lot. I still often see top 50 altcoins that are worth (tens of) billions, and have only been created a couple of months ago. It just doesn't make any sense.

Diversification is still a smart thing to do, just not into altcoins.

Real diversification includes - fiat, metals, real estate, etc. But most people don't have that much capital so you are better off having savings in fiat and crypto. So you can live off it while crypto is melting.

Stocks are a good option to diversify, and (if your budget is high enough) property works too. I wouldn't keep precious metal for long-term gains.

Halab's [Contest][ALT] Best portfolio 2022 shows what's left now of $1000 invested in different coins at the start of this year:

Thu May 19 00:00:01 UTC 2022 (see source for daily updates)

1. LoyceV: $1001.95
Tether Price (500.71000679 USDT): $500.82
USD Coin Price (400.00000000 USDC): $400.89
Binance USD Price (50.03812905 BUSD): $50.12
TrueUSD Price (50.08835586 TUSD): $50.12

2. Bitcoin: $621.16
Bitcoin Price (0.02158895 BTC): $621.16

3. mole0815: $539.05
Fantom Price (88.88888889 FTM): $28.25
Cronos Price (358.11616572 CRO): $66.27
Monero Price (1.31044424 XMR): $203.73
Pirate Chain Price (285.71428571 ARRR): $240.81

4. Buchi-88: $426.58
IOTA Price (145.98540146 MIOTA): $48.64
Waves Price (20.60439560 WAVES): $127.29
Tezos Price (45.87155963 XTZ): $76.87
Bitpanda Ecosystem Token Price (275.22935780 BEST): $173.78

5. an@sha: $411.44
Dogecoin Price (2932.00103206 DOGE): $245.94
1inch Price (104.60251046 1INCH): $94.69
Theta Network Price (31.77966102 THETA): $38.68
Compound Price (0.49957536 COMP): $32.13

6. Yabes: $355.88
Conflux Price (999.96000160 CFX): $82.16
Litecoin Price (1.70532060 LTC): $112.83
Covalent Price (694.66755816 CQT): $105.98
PancakeSwap Price (12.72264631 CAKE): $54.91

7. Little Mouse: $348.09
Enjin Coin Price (193.05019305 ENJ): $124.95
Polkadot Price (7.47943156 DOT): $71.18
KuCoin Token Price (9.32400932 KCS): $134.00
Render Token Price (21.69197397 RNDR): $17.95

8. xandry: $327.04
Banano Price (11091.21101384 BAN): $86.76
Mysterium Price (555.23105385 MYST): $101.49
Storj Price (142.04545455 STORJ): $76.88
Polygon Price (98.81422925 MATIC): $61.90

9. elma: $322.73
Alchemist Price (1.07991361 MIST): $6.40
Polkadot Price (9.34928945 DOT): $88.98
Shiden Network Price (258.06451613 SDN): $106.30
NEAR Protocol Price (20.53388090 NEAR): $121.05

10. MishaMuc: $299.80
IOTA Price (291.97080292 MIOTA): $97.28
Solana Price (1.46886016 SOL): $73.09
Floshin Price (45547711227.51080000 FLOSHIN): $42.54
Bitpanda Ecosystem Token Price (137.61467890 BEST): $86.89

11. -doubleU-: $286.46
Cardano Price (152.67175573 ADA): $77.25
IOTA Price (145.98540146 MIOTA): $48.64
Avalanche Price (2.73647724 AVAX): $80.84
XAYA Price (724.01509813 CHI): $79.73

12. sam00: $262.80
Defi Warrior Price (51616.84608682 FIWA): $19.93
Elrond Price (1.04663820 EGLD): $95.57
Enjin Coin Price (96.52509653 ENJ): $62.48
Holo Price (33814.81115781 HOT): $84.83

13. Saint-loup: $258.41
Atari Price (6802.58887096 ATRI): $30.02
Flow Price (28.12148481 FLOW): $80.49
Polygon Price (79.05138340 MATIC): $49.52
Dogecoin Price (1172.80041283 DOGE): $98.38

14. GrosWesh: $254.63
Casper Network Price (3489.30527932 CSPR): $128.48
CHEQD Network Price (1024.30155438 CHEQ): $43.65
Hathor Price (125.78616352 HTR): $21.36
Internet Computer Price (8.17995910 ICP): $61.13

15. perl: $218.40
Anchor Protocol Price (73.09941520 ANC): $7.41
BEAM Price (430.30963360 BEAM): $56.65
Avalanche Price (2.28039770 AVAX): $67.36
Orchid Protocol Price (680.29247134 OXT): $86.97

16. chem96: $213.85
Algorand Price (240.96385542 ALGO): $104.61
Anchor Protocol Price (73.09941520 ANC): $7.41
BEAM Price (344.24770688 BEAM): $45.32
FireBot Price (132.74336283 FBX): $56.51

17. Halab: $199.54
Ethereum Price (0.02712674 ETH): $51.95
Ultra Price (222.92993631 UOS): $80.27
Gods Unchained Price (80.64516129 GODS): $26.66
The Sandbox Price (34.01360544 SAND): $40.66

18. DarkStar_: $197.23
Mirrored Apple Price (1.40481007 MAAPL): $22.56
Mirrored Microsoft Price (0.74098225 MMSFT): $140.28
Mirrored Google Price (0.08518962 MGOOGL): $20.98
Mirrored Facebook Price (0.70803478 MFB): $13.40

19. 1miau: $160.17
JOE Price (212.26415094 JOE): $90.18
BENQI Price (1330.76938432 QI): $17.16
Algorand Price (60.24096386 ALGO): $26.15
Sherpa Price (435.93803402 SHERPA): $26.68

20. MinoRaiola: $152.89
Elemon Price (384.61538462 ELMON): $9.56
Verasity Price (11598.25724587 VRA): $91.28
Anyswap Price (5.91016548 ANY): $40.38
DeRace Price (27.70083102 DERC): $11.67

Altcoins can recover much faster to Bitcoin.

That's only because many people believe this: once it goes up, they buy it. Not because they think it's any good, but because they expect to make a quick profit. That makes it a self-fulfilling prophecy.

[1miau]

Altcoins can recover much faster to Bitcoin. This can immediately compensate the lose during the bear season if user just hold until the point that they are on profit.

I beg to disagree and that's one of the most common mistakes, hodling altcoin for the longer period of time (especially during bear market) hoping that one day they will be in the profit. In reality, majority of them end up being bagholders of worthless shitcoins.

Exactly, like o_e_l_e_o brought some examples already from historic coinmarketcap. In general, Altcoins tend to lose attention after they were "famous" because a new "better" altcoin is presented.

Most famous Altcoins of 2017 / 2018 didn't even set a new all-time-high again in 2021 / 2022:

Coin	ATH 2017 / 2018	ATH 2021 / 2022
__________________	_______________________	_______________________
EOS	22$	15$
Ripple	3.50$	2.00$
Tron	0.225$	0.16$
BCH	3,800$	1,500$
Stellar	0.90$	0.73$
Bitcoin	19,600$	65,000$

Halab's [Contest][ALT] Best portfolio 2022 shows what's left now of $1000 invested in different coins at the start of this year:

1. LoyceV: $1001.95
Tether Price (500.71000679 USDT): $500.82
USD Coin Price (400.00000000 USDC): $400.89
Binance USD Price (50.03812905 BUSD): $50.12
TrueUSD Price (50.08835586 TUSD): $50.12

19. 1miau: $160.17
JOE Price (212.26415094 JOE): $90.18
BENQI Price (1330.76938432 QI): $17.16
Algorand Price (60.24096386 ALGO): $26.15
Sherpa Price (435.93803402 SHERPA): $26.68

Please don't remind me.  
The bear market is killing all my nominated Shitcoins.
Looks like your pick wasn't bad at all.
In case of a bear market = almost a safe bet for you to win because all Altcoins would drop but stablecoins remain stable*.
In case of a bull market = very low chance for Stablecoins for a win.
But since everyone nominated volatile Shitcoins, the bull market lane was packed.

*And you made a good choice by avoiding Terra USD.  

[pooya87]

*And you made a good choice by avoiding Terra USD.

Correction:
You got lucky that other but similar shitcoins that you didn't choose got dumped instead.

There really isn't any difference between one centralized shitcoin and other centralized shitcoin. It just happened that the model they were using fell apart this time while others didn't but could fall apart next time!

[Rikafip]

Most famous Altcoins of 2017 / 2018 didn't even set a new all-time-high again in 2021 / 2022:

The one you are missing in that table is ETH and it managed to set a new all time high in this bull run as back in early 2018 ETH was at $1448 while in November 2021 it was $4815. I am not sure about Cardano, but I think that it also managed to surpass the old all time high during this bull run. Those are just few exceptions that confirms the rule though and probably the same thing will happen with all these new altcoins that are recently popular like Solana, Polkadot, Chainlink etc.

[o_e_l_e_o]

One of the tricky things to consider is that even though Bitcoin's market cap has been falling for a while, that doesn't mean individual altcoins gained market cap.

Even when you consider the constant stream of newly created shitcoins with ridiculous marketcaps (which in no way reflect their true value or the amount of money actually spent) diluting the numbers, bitcoin's dominance has increased by 4% over the last month, while pretty much everything else is down. People gamble on shitcoins during a bull market, but as soon as the bear market comes along, everyone knows the safest place that their money should have been all along.

It just happened that the model they were using fell apart this time while others didn't but could fall apart next time!

Given that it is no secret that Tether is insolvent, it is only a matter of time before it eventually falls apart. The market crash when that happens will be a good one. Can't wait to buy that dip!

I am not sure about Cardano, but I think that it also managed to surpass the old all time high during this bull run.

Have Cardano actually done anything yet? Last I checked (which admittedly was a while ago) they had been vaporware for like 4 years. Marketcap of billions without even a working prototype.

[Rikafip]

Have Cardano actually done anything yet? Last I checked (which admittedly was a while ago) they had been vaporware for like 4 years.

Nope, still the same old thing, Charles Hoskinson selling a pipe dream to army of his lemmings. AFAIK bunch of shitcoins based their projects on Cardano to benefit from the hype while ADA was pumping last year (I just checked and it managed to surpass 2018s all time high) but due their constant delays and false promises they had to switch on other blockhains.

Marketcap of billions without even a working prototype.

Their followers are even more zealous than BSV ones so no wonder that they are still in top 10 mcap wise.

[LoyceV]

Even when you consider the constant stream of newly created shitcoins with ridiculous marketcaps (which in no way reflect their true value or the amount of money actually spent) diluting the numbers, bitcoin's dominance has increased by 4% over the last month, while pretty much everything else is down. People gamble on shitcoins during a bull market, but as soon as the bear market comes along, everyone knows the safest place that their money should have been all along.

That leads back to my conclusion that altcoins and all the other "disrupting creations" are only created to earn the creator more money. Add the fact that exchanges earn billions of dollars from it, it's not even a zero-sum game: it's a game with more losses than profit.

[Widdop37]

The aim I have towards altcoins is to never be a holder but a opportunity taker, altcoins give me more bitcoin, Bitcoin indeed deserves to sleep in our wallet address than altcoins but with altcoins you will have more bitcoin in no time.