Original Topic: Is diversification into different coins really a good advice for Newbies?Author: 1miau
Most Newbie articles don recommend am: "Diversify! Make you no put all egg 4 one basket! Make you by different coins so your risk go reduce!".
So far, dat go sound good 4 first glance, but e go be true 4 reality? Make we check am:
Diversification wey person go do 4 cryptocurrencies dey applicable? Since I dey reason am say dis advice dey come 4rm di market of traditional investments like stocks, precious metals and co., Make person no say dis strategy make sense well we'll 4 traditional markets. Behind stocks dey are usually large companies dat don proven 2 be established on di market and di risk 4 major loss don dey lower, especially if you don rely 4 top stocks. Even precious metals such as gold and silver are not worthless 4rm 2day to tomorrow, so a big loss is unlikely.
If you take di Coinmarketcap 100 for comparison 2 di S&P 100, you go quickly realize say dere are tons of shitcoins wey no get concept, even if dey 4 TOP 100 out of more dan 10,000 Altcoins. Even 4 TOP 10, at least 50% go be describe as shitcoins, if some of dem are not even scams.
Most of dis project still dey very early stage and even Ethereum no fit sure say deir idea of PoS go really work (as well as plenty oda problems). And Ethereum currently Don dey second place, what’s self-describing 4 di speculativity of lower-placed coins. A loss of more than 90%, as di last 2 years have shown, no dey uncommon. Such a thing go be unrealistic 4 most stocks as well as 4 precious metals or real estate.
Cryptocurrencies no just dey comparable 2 deir structure where di strategy of diversification is used successfully so far, since di structure 4 crypto dey different. Dey dey offer significantly higher returns but also a significantly higher risk.
Watin dey right 4 di past - diversify or not?For cryptocurrencies in last two years, it’s obvious dat holding a high percentage of Bitcoin na di best decision. In retroperspective, you go always say dat Coin xy did outperform Bitcoin, but wen you analyze most of di known altcoins back in 2017 / 2018, dey lost between 80-95% since all-time high, while Bitcoin don lost only 50% until now. So, in Fiat, dat means you go save more money wen you do investe am solely 4 Bitcoin, namely 250% wit Altcoin of 80% loss and even 1,000% wit Altcoin of 95% loss. If you Don invested $1000 around ATH in 2017 / 2018 you go now have $500 in Bitcoin, but only $200 in Shitcoin A wit loss of 80% and only $50 at Shitcoin B wit loss of 95%. Or di following table:
| Coin | Investment around ATH | Loss until now | Remaining value |
| ___________________________________________________ | ________________________ | _________________________ | ______________________ |
| Bitcoin | 1000$ | 50% | 500$ |
| Shitcoin A (let’s say Litecoin, in early 2018 Rank 7) | 1000$ | 80% | 200$ |
| Shitcoin B (let’s say NEM, in early 2018 Rank 6) | 1000$ | 95% | 50$ |
So, you go quickly realize dat diversifying of several top 10 coins dey counterproductive compared to investing everything in Bitcoin. Although dere are also cryptocurrencies, dat outperformed Bitcoin, but dat one no affect much highly diversified portfolio. E dey very difficult to impossible to spot dese Altcoins beforehand and very speculative to go for single Altcoin. In addition, dat go be di opposite of diversification.
Holding many different coins and "diversify", resulted in by far bigger losses dan just holding Bitcoin.
I no fit predict say such statistics dey relevant 4 di future, we go wait to see. By comparison, plenty Altcoins don outperforming Bitcoin 4 di last bull market. But it considered as very unlikely, especially due to di large mass of half-baked Altcoins offering disame use-case.
Additional problems 4 diversification: more workload, accidental loss 4 coins and risk 4 downloading malwareA highly diversified portfolio get some more drawdowns:
Each user go need 2 spend a
considerable amount 4 work:
- Each Altcoin go dey reviewed 2 see if e dey sustainable and good investment. You go also throw your money to each of di Top 10 coins but dat no be wise decision.
- In general, all your owned Altcoins go be regularly monitored to sell dem on time should problems arise 4 di Altcoin. Dis will mean dat you go invest a lot of time, di more coins you have 4rm different projects.
- You don gain knowledge about the technology 4 each Altcoin, how di project works and create your own wallet 4 storing your Altcoin. Dis go dey very difficult depending on di Altcoin, especially 4 newbies, and in addition put dem at risk of losing di coins by mistakenly improper use. Wen installing various wallets, dere is also risk 4 downloading malware wit all di bad consequences.
If you get only few coins, dese factors dey greatly minimized.
In conclusion, a large part 4 Bitcoin in your portfolio is less speculative, less risky and less work. Di more Altcoins you buy instead and reducing your percentage 4 Bitcoin you hold, di more speculative, riskier and more work your investment you go get.
