Topic: Is diversification into different coins really a good advice for Newbies? - page 3. (Read 1377 times)

Unfortunately that is a sad reality because those assets are heavily paired with Bitcoin in crypto markets that they are almost inherently and tightly bound to each other.

I hope this status quo will gradually change as there are right now crypto asset(s) that aren't paired to Bitcoin (maybe by design of the core team) but rather, they are paired with a stable coin which makes them less correlated to Bitcoin and could be a good choice for diversifying our crypto portfolio. Imho.

There are a grand total of maybe 3 altcoins which fit that description though, and even then, although they have their only fully functioning product with its own use case and ongoing development, if bitcoin were to crash, they would all crash too.

Just because you think it is diversification, doesn't make it true I'm afraid. As we've seen countless times, when bitcoin crashes then the entire crypto-space crashes with it. When your assets are so completely correlated, then you haven't reduced your risk at all, and so you aren't diversified.

I 98% agree with this. Contrary to popular opinion from bitcoin maximalists(I say that in a neutral manner and not as an insult btw just to be clear), I still think that it's possible to make money from certain altcoins as a long-term investment. It's just that the chances of a person of picking the correct long-term potentially winning altcoins is really really slim hence it's really not advisable to hold anything rather than bitcoin.

By that I mean those altcoins having promising fundamentals are altcoins that has a fully functioning ecosystem and products, or it has capable team, good tokenomics and exhibits continuous development and improvement and not necessary having only ideas based on whitepaper which is of course often disregarded by the community.


You have a point but be as it may and in the context of crypto investment, I have to disagree because I believe that holding altcoins is still a "diversification" for me like those big bag holders who spread their portfolio across several cryptocurrencies with the belief that they are in some way or the other "diversifying" their portfolio.

Though I must admit it is not an ideal way of diversification, I also believe it is a common practice by most crypto investors nowadays.


I agree that considering the degree of correlation of assets is a great way to diversify a crypto portfolio and I must admit that altcoins have a higher degree of correlation with Bitcoin because almost all of them are paired together with Bitcoin on crypto markets.

Now, I did see some altcoins that is only paired with stablecoins and I understand there is a low degree of correlation  with Bitcoin, which I think could be an asset worth holding to make our portfolio more diverse. Imho.

Very good read, it's alarming that the guy lost almost 50% in Bitcoin because his Altcoins went down:


Could be interesting to do such a study today, wait a year and compare it again.
LoyceV did something similar:

LoyceV's Legendary 10 Month 10 Person 10 Altcoin Investment Experiment Hint: no happy End
https://bitcointalksearch.org/topic/m.43452201

I will speak in the defense of litecoin, which isn't a total shitcoin and gave people a very good opportunity this year.
If you compare the lows, Bitcoin went to 3,2k USD and then peaked at 14k. LTC to 20 USD and then 120 when it followed Bitcoin's pump. So Bitcoin's value increased roughly by 4 times and Litecoin's 5 times. Some people like altcoins because they lose more and later gain more.
There's a difference between an altcoin and a shitcoin. Altcoins like Monero, Litecoin, BCH, follow Bitcoin. When it pumps they pump and when it dumps they dump. Shitcoins lose value in general and their pumps are insignificant and always lead to lower lows. LSK is a good example.

I found this interesting exercise on the topic: https://medium.com/bull-bitcoin/the-crypto-diversification-trap-6744b0a954a6

It goes on to show what a diversified portafolio, suggested by Brian Kelly on CNBC in 2017, looks like today. It displays the portfolio value in USD and the cost of opportunity on BTC. Fine, the article is not at it’s best (too many freak images), and perhaps the portafolio is not my piece of cake, but the author performed an interesting exercise.

To cut a long story short, the suggested portafolio back in 2017 by Brian Kelly was: (only) 30% Bitcoin, 15% Ethereum, 15%  Ethereum Classic, 10% ZCash, 10% Monero, 10% Ripple, 5% Metal (wtf?) and 5% Iota.

The result is that, if you invested 10K in August 2017 into the above diversified crypto-portfolio, two years later you would have ended being up +33,56%. The thing is, when you go into the details, Bitcoin rendered the vast majority of the benefit, and only Ripple and Monero contributed marginally to the benefit. The others were at a sever loss.

The cost of opportunity in diversifying in the sample case is that, had you invested it all in Bitcoin initially, your 10K would be now (August 2019) worth 26,6K (+266,84% vs the 33,56% made).

Of course that is just an example, but one of what advice a couple of years ago would have led to today.

No, it's not diversification if the assets are not diverse. Correlation is a major factor in stock portfolio management so your analogy just confirms that it should be considered when investing in crypto as well. Low correlation can reduce risk, high correlation can increase risk.

I still based my reasoning on this school of thought, if you're a newbie that picked interest in investing in altcoins per se then investing in different set of projects is a perfect strategy to combat the risk of losing all your investment capital, just on one altcoin but if you joined the industry without any prior knowledge and wanting to diversify then the suggestion above should be the perfect strategy i.e you buy bitcoin and go buy other assets like stocks, company shares etc.

We'll always have those who'll be interested in Investing in altcoins, these set of Investors should always diversify, the rule of not 'keeping all your eggs in one basket' per se has to apply here since recent stats are indicating progress in selective altcoins compared to the general altcoin market. Although on a general note, they're investing in a particular class of investment "cryptocurrency - altcoins (to be specific)" but atleast their funds aren't tired to a particular project.

There is a big difference between "promising fundamentals" and an actual working product or real world use. I could go an write a whitepaper right now in under 30 minutes with loads of "promising fundamentals" - doesn't mean anything if the coins is never actually developed and only used for speculation and pump and dumps.

Anyone could make profit in 2017. Throw $100 buck in to literally any old coin and you could double your money within a few days. The problem was that most people took that to mean that they were some kind of great investor, became very greedy, didn't cash out, and are now still holding some utter trash which is down 99%.

It's a flawed analogy as I explained in my earlier post in this thread. If one stock dumps, it doesn't take the entire stock market with it. In that way, spreading in to different stocks is diversification, because if one dumps, your others will likely remain fairly stable. Spreading in to altcoins is not diversification, because if bitcoin dumps, it takes the entire crypto market with it.

I believe OP is correct in using the term "diversification", which refers to having altcoins instead  of having a Bitcoin only portfolio. A good analogy for this is with the case of  traditional investors who always seeks to diversify their portfolio buy acquiring different "stocks"  to minimize risks. So in essence, acquiring altcoins is still technically a form of diversification regardless if its hugely correlated to Bitcoin or not. Imho.

This is really happen to me, October 2017 I made a huge profits arround 200% in total, and save 50% of my profit to buy some altcoin (mentioned on previous post). Because I don't know to implement TA on my assets, i decide to hodl, and now my asset like nothing even i diversify in altcoin as many people says. But, I am happy because nothing to lose for me, that just 50% from profits not my primary investment.

you can only make profit from altcoins if you trade them instead of investing in them and there is a big difference between the two. investing is buying and forgetting for a long time and can only be profitable if the asset you buy has a good future but trading is a short term thing that requires active participation in the market and since altcoins are pump and dumping, it makes trading more profitable but also risky.
people who have made profit in 2017 were either lucky newbies who lost it all in following months or traders who got in and got out fast.

I suggest starting with Bitcoin and then educate yourself on the altcoins before investing. Many of the altcoins are specialized and it can be very confusing to know what to invest in. If you decide to branch out to other cryptocurrencies, be aware that not all will succeed. My advice is look at coins in the top 100 in market cap and do a lot of research.

Both of those projects are among the least offensive in how they operate, but shitcoins can be shit because of the way the market treats them. Poor old nem in particular has never earned any respect and is picked up and dropped again without a second thought.

Of course it could come roaring back but I wouldn't expect it to sustain unless something radical happened.

In terms of the original question, if you want to play with alts the most common mistake I see is people settling on only one or two. They all pretty much move as one as hardly anyone knows or cares about the differences between them but there's always a few losers. You may wind up deep in one of the few left behind.

If I wanted to play alts I'd spread it across a bunch and forget about it. And it would never be a high percentage of what I had in crypto.

It isn't really advisable to "diversify" into altcoins regardless if we're in a bull or a bear market, because putting money on altcoins isn't "diversification" in the first place. Bitcoin and altcoins are hugely correlated.

And I get your point that a lot of people made a good amount of money with alts in the past(even I, made some profit in sats), but lets be completely honest, those were huge gambles. Also, the main point of diversification isn't to maximize profit in the first place- it's to decrease risk.

Its not really advisable for newbies right now to diversify into altcoins since I feel there is still a market turmoil. And with this, I agree with the opinion of others  but I want to emphasize how I have been grateful and a little fortunate enough to hold some altcoins wayback in 2018 bull run, where I manage to acquire a little amount of Bitcoin and also convert some to cash!

Without those altcoins, I would never imagine my portfolio had gone ATH and for that I am grateful enough.

Nowadays, its so easy to disregard altcoins even if some of them have promising fundamentals but lets not forget that some of our fellow crypto enthusiasts had managed to have a significant amount of Bitcoin now by selling their  altcoins when it has reached ATH about 2 years ago. Imho.

Diversification only works when you are diverting into a negative co-related investments. For stock investments, some projects may have good time in December while some others may have bad time in December. It makes sense if you are investing both of the above conditions. Negative co-related portfolio don't give much profit but these are very effective when someone wants to leverage the risk to investment.

In cryptocurrency, as like bitmover said, all the coins are positively related. If BTC price increases, altcoin increases too, if BTC price decreases, altcoin price decreases as well. So, diversifying in cryptocurrency makes no sense.

In most cases, diversification mostly refer changing the nature of investment, changing the industry.

2017 I follow instruction to diversify asset to few coin, I choose RDD, Sia, XDN and EMC2, when bitcoin droppes from $19.xxx I hold my asset waiting for bitcoin pull back. But, my analisys fail, now from small amount $200, current asset drop 98%, its mean what 1miau says is really true, hold in Altcoin is very risky, if btc drop, altcoin will drop more deep.

Good point, it's common to see only the $ value and people are happy if their altcoin "rises" a little bit while it's less worth calculated in BTC. Same goes for mining / cloudmining when people buy hashrate and make money in $ like investing 500$ (0.1BTC) and now they have 600$ but it's only 0.05BTC anymore because Bitcoin rose much more. But different topic.  

---

It's a good strategy in my opinion. I'm always searching for promising, new altcoins but it's so hard to wade through tons of shitcoins and waste time for research...
The experience hasn't been misleading, a large part Bitcoin is the best choice.

---

Well said, most legit altcoins start with high expectations but the devs start realizing different kind of problems soon, making adjustments to solve the problems but that is disclosing much more problems and finally the project is dissappointing the public expectations and failing to deliever. In such cases, it's very unlikely that the price will recover.

---

---

I've adjusted the title a little bit to avoid misunderstandings. Of course people should buy into different, not correlated assets and buy gold, stocks etc in addition to crypto.