Never put all your eggs in one basket is an age old saying that remains as fresh as the day it was first said. An English saying, the little sentence holds a treasure trove of guidance and is one rule that any investor, small or large, lives by.
The concept is very basic in its rule. Diversification is what keeps you safe. Instead of pumping all your money in one asset, the investment should be broken down in smaller portions and different assets bought. This protects the money invested in the case of one asset falling in value. The losses are limited to a smaller amount to that specific asset and others can help the investor maintain their wealth.
The next question arises is, how to know which assets to invest into for diversification? Among a sea of technical and fundamental analysis, correlation is one that is common amongst all. Correlation is basically the relationship between the value of two different assets. If they rise and fall together, they have a positive correlation. A negative correlation will mean if one falls, the other rises.
Therefore, investing in different assets with little positive correlation is also important and is never more important than in crypto investments.
Automated Crypto Diversification
While diversification means doing a detailed study of each possible asset, this can be a very intensive process, and considering that the crypto sphere has inputs that are very complex, still little understood and extremely fast, an investor would spend more time studying the tokens than investing. One solution is to use a portfolio manager and they are increasingly delving into the crypto market.
A much better option is to use a dedicated crypto diversified investment platform like YDragon. The crypto investment firm forgoes human intervention and relies on a complex selection of data and leverages smart contracts to give its users the most diversified portfolio possible. The use of smart contracts means a better and more efficient handling of data and invested money, along with elimination of an asset management fee.
Raiden, YDragon CEO commented that "Diversification is a key tenet and mantra of the investor code and with the protocol, we are building, we will give investors a higher chance of sticking to this code while reducing risk."
YDragon already has planned to launch a B5 Index on the offerings, which is a representation of the top 5 Binance Smart Chain projects. The weights are adjusted frequently to ensure profits are maximized and losses mitigated. At the same time, YDragon also stakes the different tokens in DeFi farming and passes on the profits to the investors, creating a whole new source of profits and passive income through just one single token type (B5).
The speed and the efficiency, along with monetary benefits are made transparent and crypto investors have complete access to all the financial movements, giving them clarity that traditional firms and platforms would shy away from.
Why Crypto Diversification is Difficult
While traditional investment diversification is easy, cryptocurrencies are a whole new set of problems. There are thousands of tokens being traded 24 hours a day on hundreds of exchanges. If one wants to diversify, there is always a chance of selecting the wrong one, especially when even the hottest ones can end up being a scam.
The other option is to not diversify much and invest in only the top coins such as Bitcoin and Ethereum. The problem you ask? The bigger they are, the harder they fall. Bitcoin's latest crash over the last weekend saw it dip below the $33,000 mark. You would be holding your head if you had most of your holdings in BTC.
Thus having a crypto diversification without losing your sanity is extremely difficult, but thanks to platforms like YDragon crypto investors can now diversify to capitalize profits in the $1.3 trillion plus market and still keep their losses to a minimum.