Somebody once asked Barry Ritholtz – a writer and investor I admire – about diversification in investing and he said, “The beauty of diversification is it’s about as close as you can get to a free lunch in investing.”
There’s a lot of wisdom in that one line, and my goal today is to help you – the enthusiastic cryptocurrency investor – understand to a great extent what crypto diversification is and how it works.
Hopefully, you will have a clear picture of how you can effectively integrate diversification into your investing strategy by the time you’re finished reading this piece.
I also want to talk about the future of Bitcoin and we should be able to tie all of these things together neatly.
Ready? Let’s dive in.
Understanding Crypto Diversification
Simply put, diversification in crypto investing is about making sure you are not betting all of your money on any one coin – even Bitcoin. It’s the age-old metaphor of you putting all of your eggs in one basket and losing them all because you slipped once.
That’s something a smart investor always avoids. For small investors – people like you and me – who are saving up and investing to get a very small piece of the humungous cryptocurrency pie, not having more than one basket is a critical flaw. We cannot afford to lose our capital and make a comeback with just a “Whoops! My bad. Let me get the rest of my savings and pour them into crypto again.”
Nobody does that (and nobody talks like that – I know).
But a lot of people do make that other mistake, the all-eggs-one-basket one. I’ve seen my fair share of those poor souls who lost all their savings on a single crypto coin. Some of them read about that rising star in somebody’s blog and how it would rally like nothing else ever did. Some watched a social media influencer make a compelling case about a secret coin with untapped potential to make everybody rich.
One way or another, these gullible people lose their money forever and can never get back in the game.
Crypto Diversification: Why It Matters
There are two key reasons why diversification is the way to go when you’re investing in crypto: (a) it allows you to keep your capital intact and (b) optimizes your profits.
Let’s break this down.
The Save-the-Investment-First Approach
When I say diversification protects your capital, I mean it allows you to put your initial investment in a safe cryptocurrency. Like Bitcoin – it’s one crypto coin that analysts and investors love for its persistently positive long-term trajectory.
It’s easy to put your money in Bitcoin and keep it there because it’s known to be not just a safe investment but also one that always brings in high profits if you can sit through periodic turmoil in the financial markets.
But this is where people make a big mistake.
Since there are a million reasons to think Bitcoin will grow their investment at a fairly rapid speed, small-scale investors often believe they should just put their money in Bitcoin and wait for the coin to make one of its legendary rallies.
In fact what they should do is think about going beyond and growing their investment at a faster rate, not relying solely on Bitcoin to make them successful investors.
With your capital safe in Bitcoin, you can now focus on profit maximization, which I rarely see Bitcoin enthusiasts do.
This is where diversification comes into the picture.
Diversification & Profit Maximization
With diverse crypto investments, you can benefit hugely from short-term gains made by breaking out coins (A breakout coin is a cryptocurrency that’s fairly new and is set to enter the market and rapidly grow in value.
And that’s just one way you can boost your crypto profits. There are a hundred ways you might find yourself facing an opportunity to boost your crypto portfolio.
For instance, other cryptocurrencies that have been in the market for years see their value grow fast after a strategic move.
Similarly, there could be sudden favorable conditions in the market for certain coins and not others, which means if you can take some of the money from your safely growing investment out and put it in a climbing coin you can make a quick, decent profit and grow the overall value of your crypto portfolio.
Of course, you have to remember this is a short-term transaction. When the new investment peaks and you have made your profits, pull out your money and either put it back in your safe coin or buy another breaking-out coin for another round of short-term, quick profits.
But you get the picture. This is how crypto diversification can help you become a better, more profitable crypto investor.
Bitcoin’s Shining Future & the Road to Successful Profit Optimization
I am a proud Bitcoin enthusiast and I have had the pleasure of meeting others like me in recent years who are rooting for the king coin to hit the next big milestone in its consistent climb to greater value and returns.
To say Bitcoin is the most trusted cryptocurrency of them all is a simple fact. Analysts, crypto enthusiasts, and investors (individuals and organizations alike) agree that Bitcoin’s future is bright.
And they believe so for a variety of reasons that we won’t be able to go into detail today. What I do want to highlight here is the fact that Bitcoin has consistently proven itself in a hostile market and grown into one of the most promising assets in recent years.
For instance, in a recent development where the SEC bowed out of its lawsuit against Grayscale Bitcoin Trust by not appealing the August decision in the Supreme Court, Bitcoin has broken through another major barrier. This SEC move has made Bitcoin ETFs an almost certainty now, which will be another leap towards Bitcoin becoming a traditionally traded asset.
Bitcoin Growth: As Reliable as It Gets
With these positive developments, Bitcoin continues to shine as the bedrock of everything crypto believers want to achieve in the future. Its growth and journey to traditional financial legitimacy is a testament that cryptocurrencies can become a robust and globally accepted class of assets.
In many ways, Bitcoin has already established itself as any other bona fide asset investors have traditionally trusted. A few weeks back, Forbes reported on a value growth analysis among the top assets in the US for the period between 2011 and 2021. The study discovered that Bitcoin outperformed every other asset during this period, including NASDAQ and gold, returning 230 percent growth annually and whopping cumulative gains for the study period with 20M percent.
Extraordinary achievements like these alone prove that investors from all walks of life trust Bitcoin and its future is headed in a safe and very profitable direction.
How to Use Bitcoin for Profit Maximization Through Diversification
Now that you understand how important crypto diversification is and why Bitcoin is the most reliable crypto asset to date, it’s time to bring all these ideas together and talk about profit maximization in crypto investing.
In all honesty, though, the picture you had in mind earlier is probably already much clearer. You see the way ahead, Bitcoin’s place in your investment growth strategy becoming obvious as a springboard to greater profits.
I will do my duty and talk this through, just in case.
With my years in crypto investing, I have learned to anchor on Bitcoin as my primary, safe coin. It’s where I keep much of my capital but – as a staunch believer of diversification – I’m always investing in breakout coins to optimize my profits and grow the worth of my portfolio.
I use Bitcoin as my anchor and diversify to not miss on any short-term but rapid growth opportunities, which enables me to get the most out of my crypto investment without risking my capital by using leverage or investing in futures.
Of course, most of what I gain with my trades I reinvest in my diverse portfolio to keep growing my gains until a coin I have profited from shows signs of plateauing.
In other words, I’m always diversifying and rebalancing my portfolio. And I suggest that’s what you do with yours. Good luck!