Topic: Is diversification into different coins really a good advice for Newbies? (Read 1386 times)

Oh that's good as I didn't notice that you have also done great job of translating this thread in different languages for the help of newbies who are always confused that whether to diversify portfolio or not.They will come to know about different experiences and opinions of members which will help them but as previously my advice is also HOLD Bitcoin

I've updated my list of translations because Chilwell has translated my topic and presented it in our Nigeria (Naija) forum section.   
Many thanks @Chilwell for your translation.


Translations:

• Nigeria (Naija): Is diversification 2 different coins really be good advice 4 Newbies?, translation by Chilwell

That is also what I hear from crypto experts who advise diversifying only in the top ten Coinmarketcap-listed coins. Sadly, that was a failure because, as the chart shows, the coins in the top ten are inconsistent when compared to Bitcoin and Ethereum becoming an exception among thousands of altcoins. I continue to diversify, and I am benefiting from it, but possibly because I have sufficient experience in the altcoin market. So it is best to simply recommend only bitcoin to any novice. Anyhow, they will soon continue to learn more about cryptocurrencies, and soon that they have sufficient knowledge, they will be willing to take a risk on altcoins when they are ready.

Mind you that you mustn't have mentors/experts you can call to help you choose your investment or the coins you should throw your money on, if you want to understand crypto investments properly, you have to do it yourself, with adequate research you would get the right advice and information without needing to contact anyone who you would/might continually depend on before making any move, doing things that way could get you misled or scammed.
Diversification of your investment increases your income if you buy different assets (that are non-crypto), it is prolly best to basically just buy Bitcoin, and buy other assets like gold, etc.

Platform?
It's always recommended to send all coins to your own wallet, where you own your private keys.
Not your keys, not your coins. 

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Have you read my topic? 
Diversifying into different Altcoins has proven to be a bad idea. I've made a new round of comparing Altcoins and Bitcoin, this time the Top 10 coins on December 24, 2017 vs. today by investing 900$ in:

- 900$ in Bitcoin
- 900$ in 9 Altcoins (100$ each)



It's a very bad result for Altcoins once again:
Altcoin result: 45,10% loss
Bitcoin result: 62,94% gain

Diversifying into different choice coins is a good idea, mostly when you know what you are doing. I would also love to ask if you are a newbie here or a newbie to crypto currency and its use?
I asked because unless you have mentors who you can call up for directions or advice, as a newbie, you will likely learn from the experience of having more losses than gain, mostly when the market shifts and other factors happen.
Learn first, before becoming a pro. No one goes anywhere when the cart is in front of the horse.

Sometimes diversification of investment also increase your income.
But to achieve this, one has to be very carful of the platform to which he wants to pour out his investments. People like me who is a newbie I won't be so eager and haste to make investment into other platforms that are unverifiable like Bit coin. So the advice for my fellow newbies is that, take proper evaluations of the platform be for investing or diversifying your investments

Short update of our topic.

I've recently analyzed prices from all Top 5 coins according to Coinmarketcap from the last all-time high (2017) until today. As reference date, I too December 24, 2017 from historical Coinmarketcap, because Bitcoin had its all-time high on December 17, 2017 and many Altcoins around January 4, 2018.
Each Altcoin got $100 in investment (4 x $100) and $400 in Bitcoin for comparison.
Result: the $400 for Bitcoin became $651, the $400 for Altcoins became $331. So, our Top 5 Altcoins from December 2017 were only half as successful as Bitcoin, but Ethereum was more than twice as successful as Bitcoin.
And Bitcoin Cash was quite miserable with a loss of 94 percent...



It's proving once again, how Bitcoin is more reliable than Altcoins (at least in our example).  

The saying not to put all your eggs in one basket could be so tricky. In one basket you might get all the securities you need while in the other, it could be some patched and bad basket and then you have your eggs broken in trying to be smart.

Putting g all your eggs in one basket might mean, altcoins and bitcoins and also could mean cryptocurrency and other fields of investment. Its left for you to chose wisely and know that which ever decision you pick, there is some risk in it and the very thing you hope to avoid or is running from would come closer to you even more.

OP used Litecoin as an example but in early 2018 that was the time altcoins are surging (ATH), who would be so stupid to hold LTC at that time till 2022 when that was the perfect time to sell? Let's stop making altcoins a bad example when it's easier to get rich through them, with a good entry point and exit point you will make better profits from altcoins than bitcoin, bitcoin is simply the best for long term hold accepted.

It's fair point, but it goes both way. You took wrong "opportunity" and you'll have less Bitcoin in short time. Short-term investment isn't for everyone, especially those who don't want to regularly check the news.


You're supposed to use term "Public relations (PR)" since it sounds more professional.


CMC should consider using 5.551e-20 (i didn't count 0 amount on screenshot) and "six 9s" which represent 99.999999% .

I don't want to sound stereotypical, but since you've started talking about shitcoins, a little more shit-talking is not going to harm. The Cardano community, along with Ethereans (and pretty much every other Twitter account, lol  ) are assholes. Few months ago, I was invited in a Twitter Space, whose main topic was supposed to be bitcoin, financial recession and the like.

Every few minutes there were people, who'd taken the floor, and were somewhat attacking to the organizers with phrases like "Hey, Cardano does this", "Does bitcoin do that?", "Bitcoin has no dApps" etc. I've come to the conclusion that the worst people to talk about anything is those who buy "cryptos".

LOL!

Always makes me laugh when a project which claims to be decentralized has a CEO. Makes me laugh even more when that CEO refers to the "decentralized" project as "my company", as in this tweet. Good to see Cardano bag holders can see clearly where their money is going - funding the CEO's trips round the world.

I went and clicked on that SSOL coin out of interest. Immediately get a warning at the top of the page which says "The smart contract owner is able to blacklist." Great start. Then you see it had zero - literally zero - volume up until yesterday, when in the space of an hour the volume suddenly jumped from zero to $2.5 million. The feed at the side is filled with accounts like "Altcoin1000X" and "MoonMooD" just spamming the same nonsense we see from spammers on the altcoin boards here - great project, to the moon, bullish chart, etc. I don't know how it could be more obviously a pump and dump scam unless it was called "PumpNDump Coin". If this is what people are losing their money on, well I must admit I have very little sympathy here.

Seriously, just buy bitcoin and be done with it. You want to diversify? Then go and buy some stocks and shares, not these scam altcoins.

I can't even begin to imagine how the weak hands are going to react when they are forced to accept yet another ugly truth about centralized altcoins. It would be a funny market then.

Coinmarketcap.com has an interesting page that shows biggest gains AND biggest losses which is a very interesting page. You see this "outperformance" every day where the rises shitcoins have make bitcoin rises look silly but also this is interesting because right in front of them there is the dumps that tells the viewer about what they should expect next.
Right now the dump part is so funny because it was so big that the percentage rounded up to 100% and the price is so ridiculously low that the number of zeros in the price doesn't even fit in the cell

https://coinmarketcap.com/gainers-losers/

Many thanks for the heads up. So LoyceV needs to wait and see if his picks for stablecoins will remain safe until December or if they fall apart before our giveaway closes.  

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Yes, some exceptions are still around and most likely will always be of course. We will also see random Shitcoins outperforming BTC.
Ethereum, Binance Coin and Dogecoin for example outperformed BTC. But did someone know it would happen exactly for ETH, BNB and Doge? Why not EOS, Litecoin or Tron?
= There's quite a big chance to end up with a large bag of Altcoin losses.

Because overally it will happen what happened since Altcoins were invented: most of them will lose positions on CMC when their promises are proven wrong or just don't work as promised.

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Shhh, Hoskinson is busy posting selfies on social media.  
It's called "comminity building" and "important" for Shitcoins.  

The aim I have towards altcoins is to never be a holder but a opportunity taker, altcoins give me more bitcoin, Bitcoin indeed deserves to sleep in our wallet address than altcoins but with altcoins you will have more bitcoin in no time.

That leads back to my conclusion that altcoins and all the other "disrupting creations" are only created to earn the creator more money. Add the fact that exchanges earn billions of dollars from it, it's not even a zero-sum game: it's a game with more losses than profit.

Nope, still the same old thing, Charles Hoskinson selling a pipe dream to army of his lemmings. AFAIK bunch of shitcoins based their projects on Cardano to benefit from the hype while ADA was pumping last year (I just checked and it managed to surpass 2018s all time high) but due their constant delays and false promises they had to switch on other blockhains.


Their followers are even more zealous than BSV ones so no wonder that they are still in top 10 mcap wise.

Even when you consider the constant stream of newly created shitcoins with ridiculous marketcaps (which in no way reflect their true value or the amount of money actually spent) diluting the numbers, bitcoin's dominance has increased by 4% over the last month, while pretty much everything else is down. People gamble on shitcoins during a bull market, but as soon as the bear market comes along, everyone knows the safest place that their money should have been all along.

Given that it is no secret that Tether is insolvent, it is only a matter of time before it eventually falls apart. The market crash when that happens will be a good one. Can't wait to buy that dip!

Have Cardano actually done anything yet? Last I checked (which admittedly was a while ago) they had been vaporware for like 4 years. Marketcap of billions without even a working prototype.

The one you are missing in that table is ETH and it managed to set a new all time high in this bull run as back in early 2018 ETH was at $1448 while in November 2021 it was $4815. I am not sure about Cardano, but I think that it also managed to surpass the old all time high during this bull run. Those are just few exceptions that confirms the rule though and probably the same thing will happen with all these new altcoins that are recently popular like Solana, Polkadot, Chainlink etc.

Correction:
You got lucky that other but similar shitcoins that you didn't choose got dumped instead.

There really isn't any difference between one centralized shitcoin and other centralized shitcoin. It just happened that the model they were using fell apart this time while others didn't but could fall apart next time!

Exactly, like o_e_l_e_o brought some examples already from historic coinmarketcap. In general, Altcoins tend to lose attention after they were "famous" because a new "better" altcoin is presented.

Most famous Altcoins of 2017 / 2018 didn't even set a new all-time-high again in 2021 / 2022:

Coin	ATH 2017 / 2018	ATH 2021 / 2022
__________________	_______________________	_______________________
EOS	22$	15$
Ripple	3.50$	2.00$
Tron	0.225$	0.16$
BCH	3,800$	1,500$
Stellar	0.90$	0.73$
Bitcoin	19,600$	65,000$

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Please don't remind me.  
The bear market is killing all my nominated Shitcoins.
Looks like your pick wasn't bad at all.
In case of a bear market = almost a safe bet for you to win because all Altcoins would drop but stablecoins remain stable*.
In case of a bull market = very low chance for Stablecoins for a win.
But since everyone nominated volatile Shitcoins, the bull market lane was packed.

*And you made a good choice by avoiding Terra USD.  

One of the tricky things to consider is that even though Bitcoin's market cap has been falling for a while, that doesn't mean individual altcoins gained market cap. There's a continuous inflow of newly created money grabbing schemes altcoins that follow the old pump and dump scheme. The top 10 places are of course filled with other altcoins, and that's why people keep jumping in. Until it implodes and is repeated in the next one. Some people earn a lot of money, most people lose a lot. I still often see top 50 altcoins that are worth (tens of) billions, and have only been created a couple of months ago. It just doesn't make any sense.

Diversification is still a smart thing to do, just not into altcoins.
Stocks are a good option to diversify, and (if your budget is high enough) property works too. I wouldn't keep precious metal for long-term gains.

Halab's [Contest][ALT] Best portfolio 2022 shows what's left now of $1000 invested in different coins at the start of this year:
That's only because many people believe this: once it goes up, they buy it. Not because they think it's any good, but because they expect to make a quick profit. That makes it a self-fulfilling prophecy.

Once upon a time, a man built a house(five rooms) in a swampy area, during the dry season, he lives comfortably with his family but during the season of rain, the whole building would be flooded.
The man wanted a way to avoid the flood or mitigate the severity. He told his children that they should decongest the sitting room by taking the house documents to room 4, television to room 3, take the beds to room 5, the sofa to room 1 and they will sleep in room 2. By this, if the flood hits the building they may be lucky that the flood may only hit two rooms out of the five and the properties in the other three rooms would be safe.
Well, the idea of the man above is the idea of diversification of some people in the world of cryptocurrencies.

I will like to go along with the idea being bad for a newbie, at least for a start one has to get the best and quality knowledge of the beauty in crypto by starting with the first and most reliable coin (bitcoin) before dabbling into investing on other coins which could turn shitcoin within a little space of time and this may give a bad impression to such newbie even when later advise to invest in bitcoin, that's why i see the need for every beginners to have a start with bitcoin and not until they are good and bold enough with crypto experience they may choose to diversify but not 100% meaning they may invest in other coins they have confidence in their reputation along side with bitcoin but it will bebtoo risky to dump bitcoin for other altcoins.

I totally agree with the post. Crypto currency market is different from the stock market and there is no need for too much diversification here. It is important to invest in currencies that hold a future value in order to be safe. Bitcoin, Ethereum and doge coins are good for investment and have a strong presence in the crypto market. It is better to stick to these ones rather than diversifying your investment with shit coins that hold little to no value. 

Didn't defi, nfts fall down in recent meltdown? What happened to 'Stable coin' UST?


Yes but you can use these assets as roof over your head, or exchange for tangible things in case hell breaks down.

I beg to disagree and that's one of the most common mistakes, hodling altcoin for the longer period of time (especially during bear market) hoping that one day they will be in the profit. In reality, majority of them end up being bagholders of worthless shitcoins.

The right course of action in the vast majority of cases is to sell altcoins with the loss but many don't have the guts to do it and they end up in a much bigger loss eventually.

This. When bitcoin goes up, altcoins goes up. When bitcoin goes down, altcoins go down even more. Diversification as a hedge against risk means buying different assets which are not intrinsically linked to each other and don't follow the same trends. There is no point trying to reduce your risk by putting money in a bunch of scammy altcoins which will only dump even harder than bitcoin does.

Here's a fun experiment: Go to the historical snapshots page on CoinMarketCap (https://coinmarketcap.com/historical/), and go back a year, two years, three years, and take a look at some of the top 10 coins. Then see where they are now. Some examples which were shilled heavily when they were at their peak, and their rankings as of today:
BCash - 23
Stellar - 26
EOS - 48
BSV - 57
IOTA - 58
NEO - 68
Dash - 76
NEM - 88
LUNA - 209

What's been constant the entire time?

Bitcoin - 1

Spin forward another 3 years and I'm certain the likes of Solana and other top ten nonsense will be several dozen places down the ranks. And Bitcoin will still be number 1.

Crypto market has different field too such as Blockahin, DeFi, NFTm Stablecoins, etc.  "fiat, metals, real estate, etc" can be classified as an asset and moving with same direction base on the global economy. Newbie is just not using diversification properly and just choosing random shit coin with random amount/percentage of there asset. true diversification requires a rule book that will determine the risk factor each coin and how much percentage that only allowed to invest with that risk involved. Crypto traders/newbie are doing a uneducated diversification that's why it always result to disaster.

Altcoins can recover much faster to Bitcoin. This can immediately compensate the lose during the bear season if user just hold until the point that they are on profit. Weak hands + BS Diversification will surely result to current crypto traders right now.

Diversification is necessary but in the same field? It's stupid. Crypto market depends heavily on Bitcoin and other tokens depends on the chain they were created on.

Real diversification includes - fiat, metals, real estate, etc. But most people don't have that much capital so you are better off having savings in fiat and crypto. So you can live off it while crypto is melting.

It is worth noting that the risks altcoins have is not just because they are alt-coins but because they lack real utility. Unfortunately all altcoins (except a handful like Monero) don't offer any real utilities that could be used in real world or they offer fake utilities like ethereum and that makes them lack real value hence their price always dumps in the long run.

up!

Short reminder why diversification away from Bitcoin migh increase your risk:


Best proof: Altcoins "Terra Luna", where "Terra USD" is based on, did completely collapse recently.
Even 2 weeks ago "Terra Luna" was at 82 USD at place 8 according to Coinmarketcap:



But now, after a few days of heavy losses, "Terra Luna" is only trading below 0.3 Cent. 






Yes, Altcoins can offer huge upside potential but Altcoins are also very risky:


Buying Bitcoin means buying a trusted and proven asset. 
Buying Altcoins means gambling to some degree.

Totally agree with you. Diversification within the framework of the cryptocurrency market alone makes little sense, by and large, all movements in the cryptocurrency market occur synchronously.
I would consider diversification in the cryptocurrency market only in two-part format, one is Bitcoin, the second is altcoin, for example, Ethereum, in a ratio of 70 to 30, this will be enough. T
rue diversification begins only when you place your assets in various unrelated areas, or related to each other only indirectly.

There are many variables and factors that may affect the degree of correlation between Bitcoin and altcoin and I believe Bitcoin trading pairs is one example, as it is tied up to BTC as the base currency that have a value correlation with the price of any altcoin but it doesn't necessarily defines correlation. Of course, there is also the possibility of deviation. Imho.

there are of course altcoins that have gained value but the problem that i have is that when it comes to "investment" i don't like leaving it to "chance", instead i want to see potential before making an investment. and so far i have never seen any long term potential in any of the altcoins.

for instance take the biggest altcoin market-cap-wise, ethereum. at first back in 2015 i thought it is one of the best projects ever built because of its idea but the more i looked at it the more flaws i saw, centralization, lack of scaling, roll back and lack of immutability, the huge premine, scams, their market manipulations,.... so i never saw any potential in it.
looking at its price, it has not gained its value through adoption or consistent rises over time. instead it gained its value through pumps and only one of these pumps has lasted, the rest have popped and price has gone back down.
the initial pump was in 2016 when after a year of constant dumps they pumped it from 0.002 to 0.03 in only one month and again after another year of dumping down to 0.01 they pumped it to 0.15 this time in 5 months and it has been dumping for over 2.5 years back towards that 0.01 (currently 0.02).
that is why they are best for short term trading (1 month, 5 month here or the usually 500% pump in one day) not long term investment.

I took one step forward in this diversification idea, and I took a look at this site:
https://www.bitwiseinvestments.com/

They have some passive funds, which are similar to an ETF.

They have those Cryptocurrency Index funds, which are Top10, Top100, etc... by market capitalization. They do not do fundamentals research or whatever. They just pick the top cryptocurrency by market capitalization, this is why they are a passive fund.

I compared the performance of all those funds agaisnt bitcoin since january 2017 and since one year ago. Especially the Top10 one, which you can see its composition on the right side (only "good"coins, eth, xrp, dash, ada, bch, xml....)
The result? Bitcoin has a better performance.

You can check here:



Since November 2018, Top 10 cryptocurrencies performance was 10%, while bitcoin 37%.
If you look at top 70 (more shitcoins), their performance was -50%, while bitcoin +37%.
Top100 was 6%, while bitcoin 37%.

Considering since 2017 1st January (since fund launched), top10 perfomance was slightly better: 844% vs 807% bitcoin. So top10 performed slighty better (5% more money), however with much more  risk.

Conclusion: Sell your shitcoins and buy bitcoin. It is better in long term and less risky. (considering past performance)

The advice "Don't put all your eggs in one basket" is something that does not apply in the crypto market, yeah sure that there are some crytpocurrencies that goes into the opposite direction compare to the majority but almost everything follows the movement of Bitcoin or if not Bitcoin the majority of the altcoins during alt season. Don't put all your eggs in one basket simply means do not put all your money in the same industry where in stocks you must focus your money into different sectors like one for energy, one for real estate, and another one for banking in the crypto "industry" you don't have that kind of diversification option since they are all cryptocurrencies and they only belong to one industry.

True for newbies. Most other coins correlate strongly with Bitcoin, and crypto as a whole should be only one asset in the portfolio of a newbie (or anyone, really).

Also, people should at least roughly know what they're getting themselves into when *investing* in something, and Bitcoin will be the asset with the most reliable information.

Do you mean trading pairs like ETH/BTC? I don't think that defines correlation. It's about the fact that cryptocurrencies in general belong in the same very narrow industry. Like all oil stocks go up and down in lockstep because some crown prince said something regardless if those stocks are traded against USD or EUR, cryptocurrencies also move mostly the same direction when something happens that affects the crypto industry.

By market cap (~$200 billion) this industry is similar in size to S&P airlines sector for example, and about 5% the size of banking, to give you a sense of scale, even tho stock market caps don't compare directly to crypto often fake market caps. This shows both that there is lot of space for growth and that being so tiny it can be affected by any little thing and there is not much room for diversification inside it.

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.  

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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.

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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.

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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.

This is the picture of diversification:  https://coinmarketcrap.co/

Its common advice but from stock market.
Bitcoin/crypto market is completly different. Bitcoin is revolutionary technology, every other crypto except Ethereum is just copy-paste of Bitcoin, so common plagiarism trying to hide it with minor changes to rules and name.
I would NEVER advice anyone to buy altcoins. Not only waste of time, but straight way to loosing money.

Great post. To run a bit further with why this comparison doesn't work: The companies listed on any stock market index are not as inextricably linked to each other as altcoins are to bitcoin. If Home Depot collapses, will it take Netflix with it? If Kraft Heinz tanks, should we expect a knock on effect on Facebook? What about NVIDIA and McDonald's? Of course not. Yet as we've seen time and time again, any time bitcoin hits a bear market, every single altcoin goes down with it. You can't call altcoins "diversification" when they just follow bitcoin whenever it goes down.

You see that kind of logic all the time. "A loss isn't a loss until you sell". That's great advice for assets like bitcoin which will almost certainly go back up, and your short term loss will turn in to a long term gain. It's terrible advice for assets like shitcoins which are only going down, and your short term loss will turn in to an even bigger long term loss.

I allocate 80 percent of my capital into bitcoin. For the rest 20 percent of my capital to invest in altcoins and this part divided into two parts:
- One part for traditional, old altcoins (top ones): 10 to 15 percent of my capital
- One part for new-born altcoins: only 5 percent of my capital. This part is for very risky investment. Even after I due my diligent investigation before investing, it is a risky investment, obviously.

Look at the image, you can see that top altcoins at their temp prices have still lost significant values from their All-time-highs. Investors have lost more in altcoins than in bitcoin investment.


Source: https://messari.io/screener

I don't think it'll work for them, without enough knowledge of what they about to do, it might become hard for them in the long run. They just need to focus on a single coin at first. then should research how to hold multiple coins in the long run with enough patience. they need to build their patience in a single coin before proceeding to the next level I guess.

So in simple words, investing in altcoin is not worthy anymore because you will not gain any profit in the long run? It is only profitable for a short time and when there's a bull run. Should we still wait for the 8 years to see the total growth and development of an altcoin? We would say to newbies like this "Hey, invest only in bitcoin! Don't put your money in altcoin". Is that so?
Did you imagine that there are times you needed them, like saving a fee, making your transactions speed faster and etc. Did you acknowledge the role of altcoins in terms of their uses not only on their prices?

Automatically you are saying litecoin and nem are both shitcoins? i hope you are right, people only like talking about the present condition and not about tomorrow, just because litecoin value dropped alot doesn't mean its the end, those who are really at lose are the ones that sell their coins and accept their loss

If you want to diversify, buy ETF, bonds, gold, silver...
Buy other cryptocurrencies is not a diversification


I wrote about it recently

in addition, i see two main problems with all the altcoins that makes them worst things to consider for diversification.
first is the obvious fact that they are always going down in long term, specially whenever bitcoin is making a move no matter if it is a rise or a fall, the altcoins drop. but usually people look at the USD value of altcoins which (only during bitcoin rises) gives them the false sense of profit. what really happens is that if an altcoin is worth 0.1 bitcoin and bitcoin is worth $1000 they show value of $100 then bitcoin rises to $2000 and these coins dump to 0.51 bitcoin but then show price of $1050 so people think they have made profit while their altcoin "gained value"! whereas they have lost almost half of their investment.

second problem is that altcoins are more like penny stocks. the problem with that is similar to penny stocks, extremely high risks. the way they diversify in penny stocks is that since the cost of each share is small, they buy lots of different things with a small amount of money trying to spread the risk. most consider this foolish though! so even if someone wants to diversify they still should do it like: 99% bitcoin + 1% (50x altcoins). but then again the same problem (unlike penny stocks) exists here. if bitcoin drops all those 50 altcoins will drop harder so there is no achievement here.

It should have been but the industry doesn't make it quite easy to benefit from cryptocurrency diversifying per se especially in bear market. Lets assume the sum of $1000 was given to two newbies to invest in altcoins from the top 10 at the beginning of 2017, estimating the profit from investing in 5 different altcoins with $200 each or investing in one altcoin with the total capital, what are the chances that, the newbie that invested in just one altcoin would had made the correct pick as to be lucky to earned enough ROI as the user that picked different altcoins.

Diversifying only works in short term Investing during bull runs since what the investors is typically during is, increasing his chances of winning by picking more altcoins instead of subjecting his chances to just one altcoin. It's quite a reasonable idea that's if the newbie in question is mostly interested in investing in altcoins.

The "diversify your investments" advice mostly came from the 2017 bull run as far as I remember, as almost everything is going up in price anyway. Obviously, that certain advice didn't work well if your diversification is with other coins/tokens rather than what it should actually be- with other assets in other industries and sectors(stocks, index funds, real estate, businesses, etc).

For some reason though, even with the very bad past results, I'm sometimes still hearing the "diversify with other coins" advice.

10/10

If someone wants to invest in crypto, they should put 80-90% in Bitcoin. If someone wants to invest in Bitcoin, they should put 100% in Bitcoin and don't even look at alts. If someone wants to invest in altcoins only, then diversification makes sense, because while investing in ICO/shitcoins is dumb, betting everything on one single coin/token is even dumber.

Also, people who have a lot of money and are beginner investors, or long-time hodlers who have already profited from crypto, these investors should diversify into non-crypto assets.

So, I totally agree that diversification is a complex topic, and newbies can easily shoot themselves in the foot with it. Anyone who advises diversification should present some concrete plan.

Yes! I mean no! No, not a good advice, yes to your post. Diversifying among shitcoins is like diversifying among penny stocks. Worthless, useless, extremely risky with very limited upside. Unless you hit something like ETH was in 2016 you're not going to overcome the losses from the 99% garbage coins in your diversified portfolio. And even ETH is like 90% off ATH currently. And the next breakout coin is not going to be like ETH, so gambling on imitations like EOS is also not going to work. Even being technologically innovative is not a guarantee that it will be a good investment.

I've been agitating for selling altcoins but most users (even when you ignore signature spammers) still think that holding a shitcoin that lost 90%+ is better than selling because it might still recover. With that kind of logic unfortunately there is no hope to educate them.

Most Newbie articles recommend it: "Diversify! Don’t put all eggs in a basket! Buy different coins to minimize your risk!".
So far, that sounds good at first glance, but is it true in reality? Let's have a check:


Is diversification for cryptocurrencies even applicable?

Since this advice seems to come from the market of traditional investments like stocks, precious metals and co., one should know that this strategy makes much more sense in traditional markets. Behind stocks are usually large companies that have already proven to be established on the market and the risk of a major loss is much lower, especially if you rely on the top stocks. Even precious metals such as gold and silver are not worthless from today to tomorrow, so a big loss is unlikely.

If you take the Coinmarketcap 100 as a comparison to the S&P 100, you will quickly realize that there are tons of shitcoins without concept, even if they are the TOP 100 out of more than 10,000 Altcoins. Even in the TOP 10, at least 50% can be described as shitcoins, if some of them are not even scams.
Most of these projects are still in a very early stage and even Ethereum is still not sure if their idea of PoS will be really working (as well as various other problems). And Ethereum is currently in second place, what’s self-describing for the speculativity of lower-placed coins. A loss of more than 90%, as the last 2 years have shown, is not uncommon. Such a thing would be unrealistic for most stocks as well as for precious metals or real estate.

Cryptocurrencies are just not comparable to their structure where the strategy of diversification has been used successfully so far, since the structure of crypto is much different. They offer significantly higher returns but also a significantly higher risk.


What was right in the past - diversify or not?

For cryptocurrencies in the last two years, it’s obvious that holding a high percentage of Bitcoin was the best decision. In retroperspective, you can always say that Coin xy did outperform Bitcoin, but when you analyze most of the known altcoins back in 2017 / 2018, they've lost between 80-95% since all-time high, while Bitcoin has lost only 50% until now. So, in Fiat, that means you've saved more money when you had invested solely in Bitcoin, namely 250% with an Altcoin of 80% loss and even 1,000% with an Altcoin of 95% loss. If you had invested $1000 around ATH in 2017 / 2018 you would now have $500 in Bitcoin, but only $200 in Shitcoin A with a loss of 80% and only $50 at Shitcoin B with a loss of 95%. Or the following table:

Coin	Investment around ATH	Loss until now	Remaining value
___________________________________________________	________________________	_________________________	______________________
Bitcoin	1000$	50%	500$
Shitcoin A (let’s say Litecoin, in early 2018 Rank 7)	1000$	80%	200$
Shitcoin B (let’s say NEM, in early 2018 Rank 6)	1000$	95%	50$

So, you quickly realize that diversifying of several top 10 coins was very counterproductive compared to investing everything in Bitcoin. Although there are also cryptocurrencies, that outperformed Bitcoin, but that doesn’t affect much a highly diversified portfolio. It’s very difficult to impossible to spot these Altcoins beforehand and very speculative to go for a single Altcoin. In addition, that would be the opposite of diversification.
Holding many different coins and "diversify", resulted in by far bigger losses than just holding Bitcoin.

I can’t predict that such statistics are relevant for the future, we’ll have to see. By comparison, many Altcoins have been outperforming Bitcoin in the last bull market. But it’s considered as very unlikely, especially due to the large mass of half-baked Altcoins offering the same use-case.


Additional problems of diversification: more workload, accidental loss of coins and risk of downloading malware

A highly diversified portfolio has some more drawdowns:

Each user will need to spend a considerable amount of work:

• Each Altcoin has to be reviewed to see if it is sustainable and a good investment. You could also throw your money to each of the Top 10 coins but that wouldn’t be a wise decision.
• In general, all your owned Altcoins should be regularly monitored to sell them on time should problems arise for the Altcoin. This would mean that you have to invest a lot of time, the more coins you have from different projects.
• You have gain knowledge about the technology of each Altcoin, how the project works and create your own wallet for storing your Altcoin. This could be very difficult depending on the Altcoin, especially for newbies, and in addition put them at risk of losing the coins by mistakenly improper use. When installing various wallets, there is also a risk of downloading malware with all the bad consequences.

If you have only a few coins, these factors are greatly minimized.


In conclusion, a large part of Bitcoin in your portfolio is less speculative, less risky and less work. The more Altcoins you buy instead and reducing your percentage of Bitcoin you hold, the more speculative, riskier and more work your investment will get.

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Translations (in chronological order):

• Deutsch: Ist "diversifizieren" in mehrere Kryptowährungen wirklich sinnvoll?, translation by 1miau
• Română: Este diversificarea monedelor un sfat bun pentru începători?, translation by GazetaBitcoin
• Nigeria (Naija): Is diversification 2 different coins really be good advice 4 Newbies?, translation by Chilwell