Everyone is familiar with the idiom, ‘don’t put all your eggs in one basket.’ The logic behind this quote is quite easy. If you keep all your eggs in one basket, what will be your fate when the basket drops ? All eggs crack!
By contrast, if you have a collection of baskets and decide to share your eggs among these baskets if one basket drops, you will lose a few eggs. But you will not be losing all your eggs as you still have other baskets left.
Crypto portfolio diversification follows the same principle. Suppose you invest in a single asset and unfortunately, financial crises occur and the price crashes, this will damage your entire portfolio. However, when you decide to split your investments in a range of assets, financial crises affecting one asset will not be the end of your portfolio.
What Does Crypto Diversification Mean ?
One could be an active stock investor in index funds and Bitcoin, but might not be diversified. Are you diversified? Well, active stock investors in Bitcoin and index funds could claim their portfolio is diversified. That is acceptable, their portfolio contains several investments but the crypto asset, Bitcoin isn’t diversified.
Crypto diversification means investing in several crypto projects rather than having just one or two investments. The major aim of every crypto investor is to make wealth and this could be achieved via crypto diversification or by using management tools. A typical example of crypto diversification is investing in up to 12 crypto assets including the major assets like Bitcoin, Ethereum, stable coins, and lots more.
Coupled with crypto diversification knowledge, crypto traders also need to possess the ability to earn passive income from the crypto-assets they invested in. This helps in further diversifying their total crypto revenue.
Why Diversify Your Crypto Portfolio ?
One thing you’ll enjoy from crypto diversification is adequate risk management. Ordinarily, mitigating risks associated with crypto is difficult if not impossible, however, investing in several crypto assets at a time as well as earning passively from stable coins, there will be little or no risk for you to face, and the effect of volatility on your portfolio will reduce.
Additionally, crypto diversification broadens your knowledge of different coins and projects. It will interest you to know that some people see Bitcoin and Ether as the only crypto coins available on the trading market. Most people don’t realize that there are thousands of tokens available on the crypto market that they can invest in.
Ultimately, crypto diversification also has the potential of making crypto traders achieve better coin performance. So people apply the philosophy of “if you’ve backed the winning horse, why bother? to crypto trading. They claim that what’s the point, investing in other cryptos when Bitcoin has got the bull run. However, Bitcoin could crash at any time just as it has done in times past.
What crypto diversification does is that it saves its users from Bitcoin’s large hit which could happen at any time, giving them more flexibility and the ability to earn a steady income from other great coins in the market that are hidden.
Conclusion
For long-time investors, crypto diversification makes sense as risks will be properly managed and your portfolio will be adequately rewarded. To get more sophisticated, consider diversifying your crypto holdings by investing in more than one coin.
Desist from relying on a single coin and earn a yield on your crypto today! Finally, diversifying your crypto portfolio is the only way to keep the value of your coins very high. don’t forget, cryptocurrency is a volatile currency so diversification is necessary.
