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[Husires]

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[o_e_l_e_o]

When people talk about diversifying your portfolio, they do not mean to sell some of your bitcoin to buy a bunch of shitcoins. (Or, if they do mean that, then they are idiots and you shouldn't follow their advice.)

The entire cryptocurrency market follows bitcoin. When bitcoin goes on a bull run, the market goes on a bull run. When bitcoin dumps, the market dumps. Sure, there is the odd coin here or there which may suddenly double or triples in value over a day or two for no good reason, but selling your bitcoin to buy shitcoins in the hope that you get lucky will result in you losing money 99% of the time. The whole point of diversification is to spread out in to different assets which are not significantly correlated (or even inversely correlated) with each other, so if one tanks, your entire portfolio doesn't tank with it.

You don't diversify your portfolio by buying 20 different oil mining companies, or by buying 20 different precious metals. Similarly, you don't diversify your portfolio by buying 20 different random shitcoins. If you want to use bitcoin as an investment, then that's fine, but it should be part of a balanced portfolio of other non-crypto investments. If you want to take wild punts on random shitcoins, then consider that gambling and not part of any wise investment strategy.

[Upgrade00]

Diversification can be a good base to provide liquidity and more income and also help reduce the risk of market volatility.

technically, cryptocurrencies are one asset class. However, the large disparity between these assets makes them ideal for all types of investment. For example, you can allocate your wallet with 50% bitcoins, 15% ETH, 10% ETH Tokens, 5% stablecoins, 13% altcoins and 7% NFTs.

• Diversification within a highly correlated market sector does not provide liquidity neither does it help reduce market volatility. As you mentioned cryptocurrencies are one asset class and contrary to the op, this doesn't make it ideal for all types of investments as majority of the coins are cheap replicas of others, while a lot more are scams.

• You do not need to own multiple coins, much less when you know little or nothing about those other niches, and setting percentages for certain areas just puts you under pressure to buy something for a "diversified portfolio".

[Oshosondy]

For example, you can allocate your wallet with 50% bitcoins, 15% ETH, 10% ETH Tokens, 5% stablecoins, 13% altcoins and 7% NFTs.

How are ethereum and ethereum tokens special, they are all altcoins, or use individual coins in the example. Out of almost 10000 cryptocurrencies that are existing, many of them are scam while many are risky to invest on. I can not say some will not bring profit, but it is better for people to learn very well before investing on any cryptocurrency.

[Pmalek]

When it comes to diversifying your portfolio to reduce the risks of market volatility, most crypto assets just follow the trajectory of bitcoin. If bitcoin starts dropping so does the majority of altcoins. Although diversification is generally a good idea, most of the time it doesn't do much good in the crypto niche.

One way to prevent losing short-term value is to convert your assets to stablecoins if you believe a significant drop is about to happen. That then opens up other potential problems that are tied to stablecoins like the uncertainty of their future and what they are backed by. Not to mention that most stablecoins are centralized assets (except DAI) that can be locked even if they are in your own personal wallet. Check out mk4's thread PSA: Most Stablecoins Can Be Frozen, Even in Your Own Wallets.

[Saidasun]

The only reason you should be diversifying your portfolio in cryptocurrencies is to use a altcoin more like a currency because of the cheaper fees otherwise you should probably have all your budget for cryptocurrencies in Bitcoin. I hate when people say that Bitcoin is too expensive but they do not acknowledge that they do not have to buy 1 Bitcoin to profit. Bitcoin increases and altcoins increase but altcoins do not increase as much as Bitcoin.

The entire cryptocurrency market follows bitcoin. When bitcoin goes on a bull run, the market goes on a bull run. When bitcoin dumps, the market dumps. Sure, there is the odd coin here or there which may suddenly double or triples in value over a day or two for no good reason, but selling your bitcoin to buy shitcoins in the hope that you get lucky will result in you losing money 99% of the time. The whole point of diversification is to spread out in to different assets which are not significantly correlated (or even inversely correlated) with each other, so if one tanks, your entire portfolio doesn't tank with it.

You don't diversify your portfolio by buying 20 different oil mining companies, or by buying 20 different precious metals. Similarly, you don't diversify your portfolio by buying 20 different random shitcoins. If you want to use bitcoin as an investment, then that's fine, but it should be part of a balanced portfolio of other non-crypto investments. If you want to take wild punts on random shitcoins, then consider that gambling and not part of any wise investment strategy.

This is why I do not trust any altcoin announcements claiming to be the next best thing they all depend on Bitcoin to some extent and they live and die by that sword. I just opened a topic asking participants of bounties that get paid in stakes and why they work for free with the promise of money in the future when the stakes are worthless. I cannot wait for some of the comments and I think a lot of them will be talking about not putting their eggs in one basket and diversifying their investments.....when they are not really doing that and are putting their eggs all in one basket. Cryptocurrency.

[Eureka_07]

Generally, cryptocurrency portfolio diversification reduces the risk But comes out with a lower return compared to the opposite strategy.
Diversifying is a good idea, but doing it in unsystematic way is such a YOLO idea. That's when it becomes very risky.

[Saidasun]

Generally, cryptocurrency portfolio diversification reduces the risk But comes out with a lower return compared to the opposite strategy.
Diversifying is a good idea, but doing it in unsystematic way is such a YOLO idea. That's when it becomes very risky.

How does diversifying in other cryptocurrencies reduce the risk compared to just being invested in Bitcoin? As already said by other members in this thread altcoins rely on Bitcoin and if Bitcoin goes on a bull run so do the altcoins. What do you mean by unsystematic way? That makes no sense if we have already established that altcons rely on Bitcoin to an extent. I would say that cryptocurrencies other than Bitcoin have a better chance of failing and diversifying into them will lead to more tears than its worth or at least will not be safer or more profitable than just being invested in Bitcoin.

[Porfirii]

As long as we haven't seen a real decoupling since 2017, nowadays diversification in cryptocurrencies doesn't make much sense and I understand the maximalists, even when I am not one of them (mostly because of the taxable events the swap would suppose in my country).

Nobody knows when the next decoupling will happen, if ever, so take it easy: you'll have more than enough time to buy altcoins when the next altseason starts, and as in a bear market Bitcoin seems to be more stable than most of them, when the market goes sideways like now, "putting your eggs in the same BTCasket" is not crazy at all. Diversification in crypto, IMO, is only good during bull season.

[Unibiker]

Generally, cryptocurrency portfolio diversification reduces the risk But comes out with a lower return compared to the opposite strategy.
Diversifying is a good idea, but doing it in unsystematic way is such a YOLO idea. That's when it becomes very risky.

This is a principle that works in the stock markets, but works opposite in crypto. Bitcoin and Ethereum are the safest of the assets, and the further down you go in market cap the more risk you present. Nearly all alts move with bitcoin still, just with exaggerated upsides and downsides. To say that diversification is safer would imply that some altcoins move differently, but they all really move the same, generally together. There are some times when alts move instead of bitcoin, but in general if you just stuck with BTC or ETH and avoided all other alts you would be much more likely to have consistent gains.

[hatshepsut93]

You wrote so much words, yet you didn't describe how to diversify. IMO the optimal strategy is to actually keep everything in Bitcoin, because not only it's the leader of crypto market, it's also technologically the best coin. Diversification makes sense when there are close competitors, but there is no close competitor for Bitcoin. If Bitcoin fails, alts most likely will sink together with it.

If you like to invest in alts and most of your portfolio is alts, then indeed it would be stupid to got all in on one single altcoin, and it's better to choose coins from top 10 for the majority of your portfolio and from top 20 as a smaller part. But investing in alts is in general not as good as investing in Bitcoin. If you look at their prices, all alts tend to heavily lose in their BTC value, meaning BTC outperforms them.

[Oshosondy]

Although diversification is generally a good idea, most of the time it doesn't do much good in the crypto niche.

I think it depends on the coins you have, the best among all is bitcoin but there are some altcoins that are still good too, but just that it is good to learn about altcoin and know the best to invest. After bear run, it is not bad to invest in altcoins because they will increase very well during bull run. Try to check the price of Doge, Raven, Zilliqa, Digibyte and some other coins, check their price in the last one year to know what I am talking about. Altcoins are very risky during bear run, but good during bull run. I am suggesting only good altcoin, there are many altcoins that are shitcoins. If someone have 70% of his portfolio on bitcoin and have 30% on altcoins, I do not see it a bad idea.

[Husires]

When people talk about diversifying your portfolio, they do not mean to sell some of your bitcoin to buy a bunch of shitcoins. (Or, if they do mean that, then they are idiots and you shouldn't follow their advice.)

It is always wrong to look at it as black and white, it is true that all altcoins are less valuable than Bitcoin, but as an investor, in certain times some altcoins achieve a return on investment higher than Bitcoin. If you are a short-term investor, then distributing your investments to some altcoins means more liquidity will flow to focus on buying more Bitcoin, and this is what I mean by diversifying the investment portfolio.

• Diversification within a highly correlated market sector does not provide liquidity neither does it help reduce market volatility. As you mentioned cryptocurrencies are one asset class and contrary to the op, this doesn't make it ideal for all types of investments as majority of the coins are cheap replicas of others, while a lot more are scams.

As I explained, I divided these currencies into CLASSES BTC/USD(T,B,C) pair is not linear, and if you have enough cash or withdraw at certain times, you will get more liquidity.

How are ethereum and ethereum tokens special, they are all altcoins, or use individual coins in the example. Out of almost 10000 cryptocurrencies that are existing, many of them are scam while many are risky to invest on. I can not say some will not bring profit, but it is better for people to learn very well before investing on any cryptocurrency.

No, any problem with Ethereum (ETH native) means a problem with all ERC-20 tokens and vice versa.
the increase in Ethereum fees means that all other networks will increase in value, which is what happened to BSC.

You wrote so much words, yet you didn't describe how to diversify.

I divided these currencies into several classes, if you want to diversify your cryptos you must contain some of these categories. Buying Bitcoin, Ether, litcoin, Bitcoin Cash does not mean diversification because they are in the same category.

[Pmalek]

and it's better to choose coins from top 10 for the majority of your portfolio and from top 20 as a smaller part.

Even that can be dangerous if we look back what coins were in the TOP 10/20 just a few years ago and where they are now.

- Litecoin used to be a Top 5 coin. It's now in the 13th place.
- Steller is slowly dropping out of the Top 20.
- Monero and EOS have already dropped out.
- I remember that NEO was in the Top 10 a few years ago. It's sitting on #41 today.
- Iota, Dash, DigiByte, Verge have it even worse.

[Oshosondy]

No, any problem with Ethereum (ETH native) means a problem with all ERC-20 tokens and vice versa.
the increase in Ethereum fees means that all other networks will increase in value, which is what happened to BSC.

Ethereum and ethereum tokens are altcoins, why did you not just mention the name of the  altcoins and tokens directly, no need to mention altcoins again because ethereum and ethereum tokens are altcoins. You can have your portfolio the way you want it but because this is public, it has to be different. You can begin like this as an example:

1. Bitcoin 70%
2. Ethereum 10%
3. BNB 10%
4. Ethereum tokens and BNB tokens 5%
5. NFTs 5%

No need for altcoins to be included again is what I am saying.

- Litecoin used to be a Top 5 coin. It's now in the 13th place.
- Steller is slowly dropping out of the Top 20.
- Monero and EOS have already dropped out.
- I remember that NEO was in the Top 10 a few years ago. It's sitting on #41 today.
- Iota, Dash, DigiByte, Verge have it even worse.

This does not mean, many of these coins increased more than bitcoin if you check the percentage of increase, but they are now falling more than bitcoin during bear run. Some people have Doge, Raven, Zilliqa and Digibyte in their portfolio and become rich by now. Altcoins are more risky but profitable during bull run.

[cryptoaddictchie]

IMO the optimal strategy is to actually keep everything in Bitcoin, because not only it's the leader of crypto market, it's also technologically the best coin. Diversification makes sense when there are close competitors, but there is no close competitor for Bitcoin. If Bitcoin fails, alts most likely will sink together with it.

Partly agreed cause I believe there are other coins and projects that worth it to invest with. Yes bitcoin is the leader but as an investor,  I think its also wise to see some opportunity aside from btc itself. Yes there are no close competitor but there are other project out there that can be worth than investing all in on btc.

I have btc and some other alts and I could say that some of my alts are much gain profit than my btc. So i dont think we could say its stupid to invest on alts, cause actual scenario and result are shown that some investment on alts are worth than btc.

[TheNineClub]

This is a good article, haven't clicked so fast on anything in a while XD I have been preaching diversification for a while but to no avail. Diversification is not a new tool when investing, it has always been around with the term 'Don't put all your eggs in one basket But it's also a thing that comes when an investor get's more seasoned.

[ndalliard]

Diversification is protection against ignorance. It makes little sense if you know what you are doing.

although i am not a big fan of warren buffet, i agree with him on this one. if you really get what bitcoin is, i don't think you should diversify in anything else. and i am not only talking about other "cryptocurrencies", also about other "investments". imo everything else goes to zero compared to bitcoin over a long enough period of time

[o_e_l_e_o]

but in general if you just stuck with BTC or ETH and avoided all other alts you would be much more likely to have consistent gains.

Exactly this. Go and look at any of the heavily shilled coins from the 2017 ICO craze. Or any of the heavily shilled coins from the IEO/ITO craze. Most of them are dead or dying, down >99% from their peak, little to no ongoing development, no real world use. We can already see the same happening with some of the coins from the ongoing DeFi and NFT crazes. Let's check back in a couple of years and see where we are. I guarantee 99% of these projects will be dead, and bitcoin will still be doing just fine. "Diversifying" in to these coins brings huge amount of additional risks for the 1-in-a-million chance that the shitcoin you bought randomly pumps x10. And even if it does, is it enough to offset all your losses from all the other shitcoins you bought?

Buying Bitcoin, Ether, litcoin, Bitcoin Cash does not mean diversification because they are in the same category.

Buying any altcoin does not mean diversification because they are all in the same category - cryptocurrencies. Why take the risk with a random altcoin which is far more likely to drop to zero than it is to make any real gains, when you can just stick to bitcoin. If bitcoin dies, your altcoin dies too. If your altcoin dies, bitcoin doesn't care.

Some people have Doge, Raven, Zilliqa and Digibyte in their portfolio and become rich by now.

With hindsight, you could have got rich by buying and selling Bitconnect at the right time. That doesn't mean it was a good coin, or has good technology behind it, or has a good team behind it, or has ongoing development, or has a real world use, or belongs anywhere near a smart portfolio. Betting on random shitcoins like these is a gamble, not an investment strategy.

[Saidasun]

Just wondering, why only BTC and ETH? Few altcoin such as BNB and ADA are currently popular and have high market cap.

Are BNB and ADA going to be around in 5 years time though and if they are are they going to be actively developed or worth anything? The thing with any altcoin is you do not know how good the development team is and how trustworthy the people are behind the coin and most like I would say over 95% of altcoins fail within a couple of years and its usually because of no active development or the team behind it decided to scam.