Sirwin
Sirwin

Diversification within Diversification

By idiosyncratic | Idiosyncratic Crypto | 19 Aug 2023


One of the first learned lessons in the markets is the positive sides of diversification. The variety of assets can be a seatbelt for a person in a market turbulence. On the other hand, it may enable the investor, a.k.a hodler, to be in lots of sectors or categories.

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Though the notion itself is a popular one, the application of the strategy can be quite different. For example, diversification might be one or two coin purchases in crypto and using your capital on stock market for a group of people whereas it can be a within group diversification for a crypto degen who invests into 5 different Layer 1 altcoins as well as Ethereum.

I think the approach to diversification has some sharp borders for the sake of a healthy portfolio. For example, I had always thought that diversification is allocating some money for Bitcoin, some for ETH, a bit for new projects and stablecoins. It might sound like a “reasonable” diversification but it really has a big problem: all your money is exposed to crypto ecosystem and its risks.

Diversification is a strategy that mixes a wide variety of investments within a portfolio in an attempt to reduce portfolio risk. Diversification is most often done by investing in different asset classes such as stocks, bonds, real estate, or cryptocurrency.

Investopedia

 

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The in-group diversifications can be illusionary because it makes you feel that you have achieved enough variety of investment for your money. Yet, you are prone to any fire from a single entity, big crypto service provider or problems with blockchain operations.

Shorts UK

I have started to explore stock markets, and mutual funds and I aim to add real estate to my diversified investment as much as possible.

By this way, I will survive even in a crypto crisis, market crash or an accident as the investments are under the influence of different risk but preservation options. My new strategy is to start diversifying from the biggest picture. If I want some cash, some fiat and stablecoins, both USDC and USDT for trades, and HBD on savings account. For other branches, the strategy will be based on how deep I am in a type of investment.

This method is pretty tiring but also less risky contrary to over-exposure cases. So far it going well. I wonder about the results after a couple of cycles in markets. On the other side, we need to diversify our security sources of assets. For example, if we think about holding our own crypto on MetaMask, or any other web wallet, or col wallets, it is also important to have different baskets for the eggs 😉

Unless there is no security concern over there, it can be the best solution to have more than 2 secure places or wallets to handle the potential risks of hacks, rug pulls and further. Yes, diversification may limit your flexibility or it really takes too much to deal with all these stuff in seperate categories and under different criteria.

Though it has many setbacks, we may need to consider all the risks in the global markets and the problems, actually fundamental problems, in crypto ecosystem as number 1 threats. Minimum risk will always let your capital grow in time, sometimes slowly but firmly.

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