The futility of crypto diversification

Pekelo

Pekelo

I know at least 2 members here who smartly diversified into multiple crypto assets. But does that really work?

Generally speaking whatever way Bitcoin goes, so go the rest fo them. This morning a quick look at the crypto market on investing.com is showing everything in the red, except Tether very slightly in the green. The red spread of the top 10 coins are between -8% and -26%. I guess being down -8% is still better than being down 3 times more, so in this case, diversification does work. Although that shit was a never heard of coin (ICP), so maybe we can put it aside.

To me the crypto diversification is like having 10 internet stocks in 1999. Sure it is diversified, IN THE SAME SECTOR!!! If you were diversified in 10 tech stock back then, you still lost pretty much the same amount like having only 1 stock. The whole sector went to hell.

Sure eventually the better coins should win and the worse ones should die, except this hasn't happened yet. Bitcoin is clearly a really bad crypto as a currency, yet it still has the highest evaluation. Doge is well, it is Doge, yet it is the best performing crypto of the year among well established old (older than 5 years) coins. Logic just doesn't work in Cryptoland.

Anyhow let's make a quick comparison of current drop from ATHs, (instead of daily fluctuations):

BTC -39%
ETH -30%
Cardano -29%
Doge -42%
etc.etc.

The point is, their drop from their ATHs are very similar. Diversification in the same sector just doesn't work. Maybe in the future it will, when logic and better features will mean something. (just kidding, they never will)
 
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I think their intention was to stay in crypto's but diversify because of the price of each crypto.
BTC is around 40K, ETH is 3K, Cardano is less than $2.
Psychologically people think that low priced crypto's can faster double than high priced ones.
BTC has to go up 40k to double, Cardano less than$2 for the same return.

I compare it to penny stocks that attract people because a $0.0001 rise can be 100%.
Doge rose 1,000 % because it was cheap. Imagine what BTC has to do to rise 1,000%.
 
Pekelo said:
I know at least 2 members here who smartly diversified into multiple crypto assets. But does that really work?

Generally speaking whatever way Bitcoin goes, so go the rest fo them. This morning a quick look at the crypto market on investing.com is showing everything in the red, except Tether very slightly in the green. The red spread of the top 10 coins are between -8% and -26%. I guess being down -8% is still better than being down 3 times more, so in this case, diversification does work. Although that shit was a never heard of coin (ICP), so maybe we can put it aside.

To me the crypto diversification is like having 10 internet stocks in 1999. Sure it is diversified, IN THE SAME SECTOR!!! If you were diversified in 10 tech stock back then, you still lost pretty much the same amount like having only 1 stock. The whole sector went to hell.

Sure eventually the better coins should win and the worse ones should die, except this hasn't happened yet. Bitcoin is clearly a really bad crypto as a currency, yet it still has the highest evaluation. Doge is well, it is Doge, yet it is the best performing crypto of the year among well established old (older than 5 years) coins. Logic just doesn't work in Cryptoland.

Anyhow let's make a quick comparison of current drop from ATHs, (instead of daily fluctuations):

BTC -39%
ETH -30%
Cardano -29%
Doge -42%
etc.etc.

The point is, their drop from their ATHs are very similar. Diversification in the same sector just doesn't work. Maybe in the future it will, when logic and better features will mean something. (just kidding, they never will)
More...

It works, Pek, but not on 1-day basis

Over several months...
 
Bitcoin down $17,000 bucks in a week. Ooops!!!!!!


As for diversifying in cryptocurrencies, nah. They usually all follow the same path up and down. Not like sectors in the stock market where you hedge with a good diversified portfolio... These are magical coins that are all fairytale stories...
 
S2007S said:
Bitcoin down $17,000 bucks in a week. Ooops!!!!!!


As for diversifying in cryptocurrencies, nah. They usually all follow the same path up and down. Not like sectors in the stock market where you hedge with a good diversified portfolio... These are magical coins that are all fairytale stories...
More...

Do you mean like in March 2020 where everything including bonds sold off?

How's your permabear portfolio doing since 2009?
 
tsznecki said:
Do you mean like in March 2020 where everything including bonds sold off?

How's your permabear portfolio doing since 2009?
More...


Wow March 2020. That's called a crisis the world never witnessed before...

I'm still holding up well, as you can see I still have portfolios I trade with. I don't use all my capital and risk shorting on margin in 2 or 3 stocks.
 
Pekelo said:
I know at least 2 members here who smartly diversified into multiple crypto assets. But does that really work?

Generally speaking whatever way Bitcoin goes, so go the rest fo them. This morning a quick look at the crypto market on investing.com is showing everything in the red, except Tether very slightly in the green. The red spread of the top 10 coins are between -8% and -26%. I guess being down -8% is still better than being down 3 times more, so in this case, diversification does work. Although that shit was a never heard of coin (ICP), so maybe we can put it aside.

To me the crypto diversification is like having 10 internet stocks in 1999. Sure it is diversified, IN THE SAME SECTOR!!! If you were diversified in 10 tech stock back then, you still lost pretty much the same amount like having only 1 stock. The whole sector went to hell.

Sure eventually the better coins should win and the worse ones should die, except this hasn't happened yet. Bitcoin is clearly a really bad crypto as a currency, yet it still has the highest evaluation. Doge is well, it is Doge, yet it is the best performing crypto of the year among well established old (older than 5 years) coins. Logic just doesn't work in Cryptoland.

Anyhow let's make a quick comparison of current drop from ATHs, (instead of daily fluctuations):

BTC -39%
ETH -30%
Cardano -29%
Doge -42%
etc.etc.

The point is, their drop from their ATHs are very similar. Diversification in the same sector just doesn't work. Maybe in the future it will, when logic and better features will mean something. (just kidding, they never will)
More...

Its likely the coin that will win hasn’t even been developed yet.
 
virtusa said:
.....I compare it to penny stocks that attract people because a $0.0001 rise can be 100%.
Doge rose 1,000 % because it was cheap. Imagine what BTC has to do to rise 1,000%.
More...
I bought a penny stock about 2 years ago, gold exploration company which had good/fantastic gold drill results. I paid $0.003, it went to $0.004 briefly and has for nearly all that remainder duration sat on $0.001.
I was given free options valued for 0.003 and not one buyer even though these days the options are valued $0.001.
So here is a stock which for 2 years cannot even move 1c on good news.
 
I'm in about 30 coins.
I don't know which coins, if any, will be good investments so rather than spend endless hours trying to figure out which one(s) will win, I just put small amounts into many.
They may all fail but if a very small number do well, I hope to have a position in one or a few.
Total crypto investment is small so easy to add small amounts.

***I think BTC has a decent chance of dropping to 20,000 which is where I'll be more interested in adding. Just small adds occasionally now.
 
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