Spreading The Risk
In one of my recent posts "FTX And Their New DeFi Index - Gain Exposure To The Top 11 DeFi Projects!", I made mention of the benefits of investing in an index when it comes to a new asset class such as DeFi. We had a look at the new index that FTX had just rolled out in order for traders to gain exposure to 11 of the Top DeFi projects currently sweeping the market and Crypto community.
I have also recently stated that I was waiting for Compound to dip to approximately $175 before I would consider picking some up. It is currently trading at $163 and appears to have bottomed out but you never can really be sure unless you wait for a trend reversal confirmation and even still there is no certainty. Balancer continues to dump and is trading at $8, while other DeFi plays such as Aave are pumping.
Just Because A Few DeFi Projects Are Pumping Does Not Necessarily Mean They All Will
Yes, Aave and Kyber have been doing really well over the past days and weeks but let's pull up some stats from Coingecko to get a clearer picture of the DeFi sector as a whole. Below we can see the performance of Compound, Balancer and Aave. We are going to want to focus on the 7 day and 14 day period.
These stats begin to create some clarity. What if you chose to invest in Compound and Balancer, thinking that Aave might be more risky and it would be better to stick with the "leaders" of the DeFi space. Well, had you purchased Compound 2 weeks ago, you would be down 8.5%. Likewise, had you bought Balancer 2 weeks ago you would also be sitting in loss. However, Balancer is not down 8.5% but rather 30.7% over the past 2 weeks!
Then you have Aave, which is up over 100% for the same timeframe. Two contrasting scenarios, yet both in the DeFi space. This solidifies my argument for investing in an index fund rather than individual projects. DeFi is a new development and there will still be casualties along the way.
Investing in the FTX DeFi index, investors are exposed to Compound, Balancer and Aave but the end result is completely different. Let's investigate what the DeFi index price is doing.
While Compound and Balancer are dumping, the index is at all time high levels! The numbers speak for themselves. To a large degree, though not completely, risk is removed and gains are more likely. I have said before that I really like this investment vehicle and now you know why! Do some research on this product and let me know what you think of it. Please remember that this is not financial advice. Thanks for visiting and keep soldiering on in Crypto!