Crypto Asset Diversification Vs. All Eggs in One Basket

What's an effective way to diversify a crypto portfolio? Are crypto assets able to be diversified at all? These are the questions that many "Hodlers" have been asking.

In this article, we will study some possible diversification options for crypto portfolios from a Hodler's perspective - i.e., diversifying investment by allocating capital into various crypto assets using long-only strategies.

The main purpose of exposure to different asset classes is to balance risk and return in a portfolio.

Some would argue that it is impossible to diversify a crypto portfolio due to the fact that major altcoins are highly correlated with Bitcoin.

Asset allocationA portfolio with a balanced selection of coins and tokens could help Hodlers balance risk and returns.

As shown above the portfolio containing only BTC and Ether has been underperformed compared to portfolios that have both BTC and exposure to mid-cap altcoins.

Stablecoins are especially important in portfolios that include highly volatile coins and tokens, as can be seen in the example of the hedged basket.

In contrast, the mixture of BTC and certain altcoins without a stablecoin in the basket could underperform the other sample portfolios provided.

A BTC-only portfolio will never able to capture the distinctive opportunities in the altcoin world, which could potentially generate higher returns - and, of course, putting all your eggs in one basket comes with higher risk.

A carefully designed portfolio with balanced asset allocation could maximize the risk-adjusted return.