Cryptocurrency is one of the fastest-growing asset classes, but with high returns comes high risk. The crypto market has seen extreme price swings, leaving many investors exposed to significant losses.
Cryptocurrency portfolio diversification can help manage these risks by spreading investments across different assets and sectors.
This article will explain why diversification is a critical strategy for any crypto investor and how you can start building a balanced portfolio today.
Key Takeaways
- Cryptocurrency portfolio diversification involves spreading investments across multiple digital assets to reduce risk and balance potential returns.
- Diversification helps limit losses during market downturns by not relying solely on one cryptocurrency’s performance.
- Investors often include different types of cryptocurrencies in their portfolios, such as Bitcoin, Ethereum, altcoins, and stablecoins, to manage volatility.
- Sector-based diversification is a strategy where investors allocate assets across various blockchain sectors like DeFi, NFTs, and smart contracts.
- Stablecoins are commonly used in diversified portfolios to provide stability and reduce overall volatility during market drops.
What is Cryptocurrency Portfolio Diversification?
Cryptocurrency portfolio diversification is the practice of spreading investments across multiple cryptocurrencies rather than focusing on a single asset.
The goal is to reduce risk by balancing different types of digital assets, such as Bitcoin, Ethereum, and altcoins, which may perform differently under various market conditions.
Diversifying can limit the impact of a sharp decline in the price of one asset while potentially benefiting from gains in others.
This strategy helps mitigate the high volatility of the cryptocurrency market. It often involves selecting cryptocurrencies from different sectors, such as DeFi, stablecoins, and NFTs, to create a balanced portfolio.
Diversification reduces the likelihood of significant losses, as it prevents heavy reliance on a single coin’s performance, making it a common risk management approach for crypto investors.
“A diversified portfolio is your best defense against the wild price swings in the cryptocurrency market.”
Benefits of Portfolio Diversification in Cryptocurrencies
Cryptocurrency diversification is a key strategy for managing risk and achieving consistent returns in the volatile crypto market.
You can reduce their exposure to the unpredictable price movements of individual assets by spreading investments across different types of cryptocurrencies and blockchain sectors.
Below are the main benefits of diversifying a cryptocurrency portfolio.
Risk Mitigation
One of the biggest advantages of portfolio diversification is the reduction of risk.
Cryptocurrencies are known for their high volatility, and prices can swing wildly within a short period.
An investor can protect against the possibility of any single cryptocurrency crashing by holding a range of different assets.
If one asset declines in value, the others might remain stable or even rise, offsetting potential losses.
For example, during market downturns, Bitcoin and Ethereum might experience significant price drops.
However, holding stablecoins like USDC or USDT can help protect a portion of your portfolio since these assets are pegged to the U.S. dollar and are less prone to volatility.
Exposure to Different Sectors of Blockchain Technology
The cryptocurrency market consists of various sectors, including smart contract platforms, decentralized finance (DeFi), payment tokens, privacy coins, and more.
Each of these sectors has different use cases and growth potential.
Diversifying across sectors allows investors to capture gains from different innovations and trends within the blockchain space.
For instance, while Bitcoin is primarily seen as a store of value, Ethereum enables smart contracts and decentralized applications (dApps).
At the same time, DeFi tokens like Aave or Uniswap open up opportunities for decentralized lending and trading.
You can benefit from the broader growth of the blockchain industry by investing across these different areas.
Stability Through Uncorrelated Assets
Another benefit of diversification is exposure to uncorrelated assets.
In traditional finance, uncorrelated assets are those whose price movements don’t follow the same patterns.
In cryptocurrency, certain assets may be less affected by the same market forces. This can provide more stability during volatile periods.
For example, while Bitcoin and Ethereum often follow similar price trends, stablecoins like USDC and USDT are designed to maintain their value.
Privacy coins like Monero may also behave differently because they cater to a niche market focused on anonymity.
This uncorrelation helps balance out the portfolio, reducing overall volatility.
Opportunities for Higher Returns
Diversifying your crypto portfolio can also increase your chances of capturing higher returns.
Instead of relying on a single cryptocurrency to grow in value, spreading investments across different projects means you have more opportunities for some of your assets to outperform.
For example, small-cap altcoins often present higher growth potential than larger, established cryptocurrencies like Bitcoin.
Investors who diversified their portfolios by holding smaller altcoins like Solana were able to benefit from this surge.
“Portfolio diversification can increase long-term gains by up to 25% by capitalizing on the growth of emerging blockchain sectors.”
Risks of Cryptocurrency Portfolio Diversification
While diversifying a cryptocurrency portfolio has clear benefits, it has risks.
Diversification can help reduce overall risk, but it also introduces certain challenges that investors need to manage carefully.
Below are some of the main risks associated with cryptocurrency portfolio diversification.
Over-diversification and Diluted Gains
One of the main risks of diversification is over-diversifying. An investor holding too many different cryptocurrencies can lead to diluted gains.
This happens because even if a few of the investments perform very well, their positive impact on the general portfolio will be limited by the number of assets held. This can make it harder to achieve significant returns.
For example, if an investor holds 20 different cryptocurrencies and one of them experiences a 500% gain, the general portfolio may only see a small boost in value due to the large number of other assets in the portfolio.
Over-diversifying can also make it difficult to closely monitor each investment.
Lack of Liquidity in Low-Cap Coins
Investing in smaller, lesser-known cryptocurrencies (also called low-cap coins) can provide opportunities for high returns, but it also introduces liquidity risks.
Low-cap coins often have lower trading volumes, which means that it can be hard to buy or sell large amounts without significantly affecting the price.
For instance, if an investor holds a large position in a low-cap cryptocurrency and wants to sell during a market downturn, they might find it difficult to exit the position at a fair price.
This can lead to selling at a loss or being unable to sell at all, increasing the overall risk in the portfolio.
Complexity in Managing a Large Portfolio
The more assets an investor holds, the harder it becomes to manage the portfolio effectively.
Each cryptocurrency may have different risks, rewards, and market dynamics, making it challenging to track all of them simultaneously.
This can lead to missed opportunities or increased exposure to risk if an investor cannot stay up-to-date with each asset.
For example, in a portfolio with Bitcoin, Ethereum, DeFi tokens, and NFTs, each of these categories behaves differently and may require different strategies.
An investor might miss important news or updates affecting one of their assets, leading to poor decision-making.
Regulatory and Security Risks
Diversifying a portfolio across different types of cryptocurrencies may expose an investor to varying levels of regulatory and security risks.
Different cryptocurrencies can be affected by different regulations depending on their use case and geographical market.
This adds a layer of complexity, as investors must stay informed about the regulatory environment for multiple assets.
Also, certain DeFi projects may be at risk of regulatory crackdowns or security breaches due to their decentralized nature. Diversifying into these areas without fully understanding the risks can lead to unexpected losses.
Correlation Risk
While diversification aims to spread risk, cryptocurrencies tend to be highly correlated during major market events.
This means that even if you hold a range of different coins, they may all decline in value at the same time during a market crash.
When the entire crypto market is impacted by a major event, such as regulatory news or a general market downturn, diversification within the crypto space might offer limited protection.
Core Strategies for Cryptocurrency Diversification
Diversifying a cryptocurrency portfolio requires more than just investing in a variety of coins.
It involves selecting different types of cryptocurrencies, sectors, and strategies to balance risk and reward effectively.
Below are core strategies to help investors build a well-diversified cryptocurrency portfolio.
Diversification Across Asset Classes
A key strategy for diversification is to spread investments across different types of cryptocurrencies.
This can include large-cap, mid-cap, and small-cap coins, as well as stablecoins. Each asset class has its level of risk and potential return.
Large-cap, Mid-cap, and Small-cap Cryptocurrencies
Large-cap cryptocurrencies, like Bitcoin and Ethereum, are generally considered less volatile because they are more established and widely traded.
Mid-cap and small-cap coins, on the other hand, offer higher potential returns but come with increased risk due to their lower liquidity and market size.
For example, holding Bitcoin for long-term stability can be balanced by including mid-cap coins like Solana, which has shown rapid growth in the past.
Small-cap altcoins like Avalanche might provide high returns, but they are more likely to experience larger price fluctuations.
“Over 50% of Bitcoin holders own more than 60% of their entire crypto portfolio in Bitcoin alone, exposing them to high risk.”
Stablecoins as a Hedge Against Volatility
Stablecoins, such as USDC or USDT, are pegged to traditional currencies like the U.S. dollar.
They serve as a hedge against volatility in a portfolio because their value does not fluctuate like other cryptocurrencies.
Including stablecoins in a portfolio can provide a haven during periods of high market volatility.
Tokens vs. Coins
It is also useful to diversify between coins (such as Bitcoin) and tokens (such as Uniswap’s UNI or Chainlink’s LINK).
Coins generally serve as a store of value or means of payment, while tokens are often associated with specific applications or services within a blockchain ecosystem.
Diversifying between these types of assets allows for exposure to different aspects of blockchain technology.
Layer 1 vs. Layer 2 Blockchains
Layer 1 blockchains (such as Bitcoin and Ethereum) are the foundational protocols of the cryptocurrency ecosystem.
Layer 2 solutions (such as Polygon) are built on top of Layer 1 blockchains to improve scalability and transaction speed.
Holding both types in a portfolio allows for exposure to innovations aimed at improving the efficiency and capabilities of blockchain technology.
Diversification by Blockchain Sector
Cryptocurrencies serve different purposes across various blockchain sectors. Diversifying a portfolio based on sectors allows investors to capture growth in different areas of the blockchain space.
Smart Contracts Platforms
Smart contract platforms like Ethereum, Solana, and Cardano enable decentralized applications (dApps) to operate.
These platforms are the backbone of decentralized finance (DeFi) and non-fungible tokens (NFTs). Including these in a portfolio can provide exposure to the growing use of smart contracts.
Payment Cryptocurrencies
Payment-focused cryptocurrencies like Bitcoin, Litecoin, and XRP are designed primarily for transferring value.
They aim to serve as alternatives to traditional payment systems like banks and credit cards.
These assets can provide a stable component to a portfolio, as their primary function is facilitating transactions.
Decentralized Finance (DeFi) Tokens
DeFi tokens, such as Aave, Uniswap, and Compound, power decentralized financial services like lending, borrowing, and trading.
As DeFi continues to grow, including these tokens in a portfolio can provide exposure to this innovative sector.
NFTs and Metaverse Tokens
Non-fungible tokens (NFTs) and metaverse-related tokens, like Decentraland (MANA) or Sandbox (SAND), represent digital ownership and virtual worlds.
These tokens are closely tied to the emerging markets of digital art, collectibles, and virtual experiences. Including them in a portfolio can capture the value being created in these spaces.
Infrastructure Projects
Infrastructure projects, like Chainlink and Filecoin, provide essential services to the cryptocurrency ecosystem.
Chainlink focuses on connecting blockchain networks with real-world data, while Filecoin offers decentralized storage.
Investing in these infrastructure projects allows exposure to the foundational services that support the blockchain industry.
Layer 2 Scaling Solutions
Layer 2 solutions like Polygon aim to improve the speed and scalability of transactions on popular blockchains.
With Ethereum and Bitcoin facing scalability issues, Layer 2 projects are gaining importance. Including them in a portfolio can provide exposure to innovations that address blockchain’s scalability challenges.
Diversification by Investment Horizon
Another key strategy is diversifying based on the investment horizon. This involves balancing long-term holdings with short-term opportunities.
Long-term Holding (“HODLing”) Strategy
Some cryptocurrencies, like Bitcoin and Ethereum, are considered good long-term investments because of their established market positions and potential for future growth.
Investors who adopt a “HODLing” strategy (holding onto assets for years) can benefit from the long-term appreciation of these assets.
Short-term Trading Opportunities
Short-term trading involves buying and selling cryptocurrencies to take advantage of price swings.
Investors can include volatile altcoins or smaller-cap cryptocurrencies in their portfolios to capitalize on short-term price movements.
This strategy can complement long-term holdings by generating returns in the short term.
Staking and Yield Farming for Passive Income
Staking and yield farming allow investors to earn passive income by locking up their assets to support blockchain networks or decentralized finance platforms.
Including assets that offer staking or yield farming opportunities, like Polkadot or Aave, can provide a steady source of income in addition to capital appreciation.
Advanced Diversification Strategies
Advanced diversification strategies help experienced investors manage risk and optimize returns in the cryptocurrency market.
These strategies go beyond basic diversification by using more sophisticated methods, such as portfolio weighting, risk-adjusted models, and the use of derivatives.
Below are several advanced strategies to enhance cryptocurrency portfolio management.
Portfolio Weighting Approaches
Portfolio weighting is the process of deciding how much to allocate to each asset in a portfolio. There are different ways to structure a diversified portfolio, and the weighting approach can have a big impact on performance and risk management.
Equal Weighting vs Market Cap Weighting
In an equal-weighted portfolio, each asset is given the same percentage allocation. This approach ensures that no single asset has an outsized impact on the portfolio.
For example, if an investor holds 10 cryptocurrencies, each one might make up 10% of the total portfolio, regardless of its market size.
In contrast, a market cap-weighted portfolio allocates more to assets with larger market capitalizations.
For example, Bitcoin and Ethereum, which have much larger market caps than smaller altcoins, would have a larger percentage of the portfolio in this model. This method tends to favor more established cryptocurrencies and may result in lower volatility.
Rebalancing Frequency
Rebalancing is the process of adjusting a portfolio’s asset allocation to maintain the desired weighting. The frequency of rebalancing can vary depending on market conditions or the investor’s goals.
Some investors rebalance quarterly, while others may choose to rebalance annually or after significant price movements.
For instance, if Bitcoin’s price rises significantly and its percentage in the portfolio exceeds the desired limit, an investor may sell a portion of Bitcoin to maintain balance.
Regular rebalancing helps manage risk and ensure that the portfolio aligns with the investor’s strategy.
Dynamic Allocation Based on Market Trends
Dynamic allocation involves adjusting portfolio allocations based on changing market conditions.
For example, if the market is highly volatile, an investor may shift more of their portfolio into stablecoins or large-cap cryptocurrencies like Bitcoin and Ethereum.
Conversely, if market sentiment is bullish, they may increase exposure to riskier, high-growth altcoins.
This strategy requires active monitoring of market trends and quick decision-making to optimize the portfolio’s performance.
Risk-adjusted Diversification Models
Risk-adjusted diversification is a more sophisticated approach that takes into account both the potential return and the risk of each asset. Investors can use various models to balance risk and reward in their portfolios.
Using the Sharpe Ratio to Balance Risk and Return
The Sharpe Ratio is a metric used to evaluate the return of an investment relative to its risk. A higher Sharpe Ratio indicates a better risk-adjusted return.
When building a diversified portfolio, investors can use the Sharpe Ratio to compare different cryptocurrencies and decide how much to allocate to each one.
For example, if Bitcoin has a higher Sharpe Ratio than smaller altcoins, an investor might allocate a larger portion of their portfolio to Bitcoin.
This helps ensure that the portfolio is not only diversified but also optimized for risk-adjusted performance.
Volatility-based Portfolio Construction
Volatility-based portfolio construction involves allocating assets based on their historical volatility. In this model, less volatile assets like Bitcoin or stablecoins might have a larger allocation, while more volatile altcoins or DeFi tokens would have a smaller allocation.
For instance, if Ethereum shows lower price swings than a DeFi token like Aave, a volatility-focused strategy might favor a higher allocation to Ethereum. This approach helps manage the overall risk level of the portfolio.
Correlation Analysis Between Cryptocurrencies
Correlation analysis looks at how different cryptocurrencies move in relation to one another. Highly correlated assets tend to move in the same direction, while uncorrelated assets may move independently of each other.
A well-diversified portfolio includes assets with low correlation to reduce the impact of market-wide downturns.
For example, Bitcoin and Ethereum often show high correlation, meaning they may not provide much diversification when held together. However, including uncorrelated assets like privacy coins (e.g., Monero) or stablecoins can help balance the portfolio.
Diversification with Derivatives and Options
Derivatives and options provide tools for managing risk and generating returns in a diversified portfolio.
These instruments allow investors to hedge their positions or speculate on price movements without directly holding the underlying asset.
Using Futures and Perpetual Contracts for Hedging
Futures and perpetual contracts allow investors to take long or short positions on cryptocurrencies without owning them. These contracts can be used to hedge against downside risk.
For example, an investor who holds a large position in Bitcoin might enter a short position in Bitcoin futures to protect against a potential price drop. This reduces the overall risk in the portfolio.
Options for Risk Management and Speculation
Options give investors the right, but not the obligation, to buy or sell an asset at a predetermined price. Investors can use options to manage risk by locking in profits or limiting losses.
For example, a call option allows an investor to profit from upward price movement without the need to directly buy the asset.
Options are also useful for speculation. If an investor believes a cryptocurrency will rise sharply, they can use call options to potentially gain more exposure with less capital at risk.
Diversifying with Tokenized Assets and Crypto ETFs
Tokenized assets and cryptocurrency exchange-traded funds (ETFs) provide additional ways to diversify a portfolio.
These assets allow investors to gain exposure to traditional markets or a broad basket of cryptocurrencies.
Tokenized Real-world Assets
Tokenized real-world assets represent physical or financial assets, such as real estate, stocks, or commodities, on the blockchain. For example, tokenized gold allows investors to hold a cryptocurrency that is backed by physical gold. Including tokenized assets in a portfolio can add stability and diversification, especially in volatile crypto markets.
Emerging Crypto ETFs and Index Funds
Crypto ETFs and index funds are becoming more popular as they provide a simple way to invest in a diversified basket of cryptocurrencies.
These funds typically track an index of top cryptocurrencies by market capitalization, offering broad market exposure with less effort required for individual asset selection.
For instance, an investor might buy shares in a crypto ETF that includes Bitcoin, Ethereum, and other top cryptocurrencies. This provides exposure to multiple assets without the need to manage them individually.
Tools and Platforms for Cryptocurrency Portfolio Management
Managing a cryptocurrency portfolio effectively requires the use of various tools and platforms that simplify tracking, trading, and optimizing investments.
These tools provide insights, automate processes, and help investors make informed decisions.
Below are some of the most common types of platforms used for cryptocurrency portfolio management.
Portfolio Tracking Tools
Portfolio tracking tools help investors monitor the performance of their crypto assets in real time.
They provide a consolidated view of all holdings across multiple wallets and exchanges, showing changes in value and performance metrics.
CoinTracking
CoinTracking is a popular tool for managing cryptocurrency portfolios.
It supports tracking across multiple wallets and exchanges, providing real-time data on prices, performance, and profit or loss calculations.
CoinTracking also offers tax reporting features, helping investors stay compliant with tax regulations.
Delta
Delta is a mobile app that allows users to track their cryptocurrency portfolios in one place. It supports a wide range of coins and tokens and can sync with wallets and exchanges.
Delta offers detailed insights into individual asset performance and overall portfolio trends.
Blockfolio (Now FTX)
Blockfolio, recently rebranded to FTX, is a well-known portfolio tracker for mobile devices.
It allows users to add their cryptocurrency holdings and receive real-time price updates, portfolio performance data, and even news relevant to their assets.
Blockfolio is favored for its simple user interface and wide asset support.
Cryptocurrency Exchange Platforms
Cryptocurrency exchanges are essential platforms for buying, selling, and trading crypto assets. Many exchanges also offer portfolio management tools that allow users to track their holdings within the exchange.
UEEx
UEEx is a fast-growing cryptocurrency exchange known for its advanced trading features and robust security protocols.
It supports a wide variety of digital assets and offers users the ability to manage and track their portfolios directly through the platform.
UEEx provides real-time performance analytics, customizable price alerts, and seamless trading between multiple cryptocurrencies.
Its user-friendly interface is ideal for both beginners and experienced traders who want a comprehensive solution for their portfolio management needs.
Binance
Binance is one of the largest cryptocurrency exchanges globally, offering a wide variety of digital assets for trading.
In addition to its trading features, Binance provides tools for users to manage and monitor their portfolios.
It offers performance analytics, and users can set alerts for price changes or volume spikes.
Coinbase
Coinbase is a popular exchange for beginners, with a user-friendly interface.
It provides basic portfolio management tools that allow users to track the performance of their assets and view detailed transaction histories.
Coinbase also offers its “Earn” feature, which allows users to earn interest or rewards on certain holdings.
Cryptocurrency Wallets with Portfolio Features
Cryptocurrency wallets not only store digital assets but also often include tools for tracking and managing portfolios. Wallets that integrate portfolio features can offer an all-in-one solution for crypto investors.
Exodus
Exodus is a multi-currency wallet that allows users to store a variety of cryptocurrencies.
It includes a built-in portfolio tracker that provides insights into the value of holdings, performance trends, and changes in asset prices. Exodus is known for its easy-to-use interface and secure storage features.
Trust Wallet
Trust Wallet is a popular mobile wallet that supports a wide range of cryptocurrencies.
It offers portfolio management tools that allow users to monitor their holdings, track price changes, and manage assets across different blockchains.
Trust Wallet also integrates with decentralized exchanges, allowing for easy asset swaps.
Automated Portfolio Rebalancing Tools
Automated portfolio rebalancing tools help investors maintain their desired asset allocation by automatically buying or selling assets to restore balance after price movements.
These tools are useful for investors who want to maintain a consistent strategy without constant manual intervention.
Shrimpy
Shrimpy is a portfolio management platform that offers automated rebalancing services.
Users can set their target allocations for different cryptocurrencies, and Shrimpy will automatically rebalance the portfolio when necessary.
This ensures that the portfolio remains aligned with the investor’s strategy even during volatile market conditions.
3Commas
3Commas is a popular tool for automated trading and portfolio management.
It includes features such as automated rebalancing, smart trading bots, and portfolio tracking. Investors can create custom rebalancing strategies based on their risk tolerance and goals.
3Commas also integrates with major exchanges for seamless trading.
Tax Reporting Tools
Tax reporting tools simplify the process of calculating capital gains and losses from cryptocurrency transactions.
These platforms integrate with exchanges and wallets to generate detailed tax reports that comply with local tax regulations.
Koinly
Koinly is a widely used tax reporting tool for cryptocurrency investors.
It connects to multiple exchanges and wallets to track transactions and calculate tax obligations.
Koinly automatically generates tax reports, making it easier for users to file their taxes accurately.
CoinTracker
CoinTracker is another tax reporting tool that integrates with wallets and exchanges to provide detailed transaction histories.
It calculates capital gains and losses and generates tax reports for different jurisdictions.
CoinTracker also offers portfolio tracking features, making it a comprehensive tool for managing both taxes and assets.
TokenTax
TokenTax is designed specifically for cryptocurrency tax reporting.
It supports a wide range of exchanges and blockchains, allowing users to import transaction data and generate tax forms.
TokenTax also offers tax-loss harvesting features to help minimize tax liabilities by selling assets at a loss to offset gains.
DeFi Portfolio Management Tools
Decentralized finance (DeFi) has opened up new opportunities for managing cryptocurrency portfolios.
DeFi portfolio management tools help investors track their decentralized investments, such as liquidity pools, staking, and yield farming.
Zapper
Zapper is a DeFi dashboard that allows users to track their holdings across different DeFi platforms.
Users can view their assets in liquidity pools, staking platforms, and lending protocols.
Zapper also provides insights into yield farming opportunities and performance data for decentralized investments.
DeBank
DeBank is another tool focused on DeFi portfolio management.
It provides a comprehensive view of all DeFi assets, including those held in liquidity pools or staked in various protocols.
DeBank also tracks yield farming rewards and offers insights into portfolio performance across multiple DeFi platforms.
Zerion
Zerion is a DeFi portfolio tracker that integrates with various decentralized platforms. It allows users to manage their assets, track performance, and explore new DeFi opportunities.
Zerion also provides a clean, user-friendly interface for managing decentralized investments without the need for a centralized exchange.
Conclusion
Cryptocurrency portfolio diversification is an essential strategy for managing the risks of the highly volatile crypto market.
You can better navigate market fluctuations and reduce your exposure to single-asset losses by spreading investments across different assets and sectors.
As the crypto market continues to grow, using tools to track your investments and understanding key trends, like trend lines, can help guide your decision-making and enhance your portfolio’s performance.
FAQs on Cryptocurrency Portfolio Diversification Strategies
This FAQ section addresses some common questions that can help you narrow down your choices:
Yes, diversification can lower risks in cryptocurrency by spreading investments across multiple assets. If one cryptocurrency declines sharply, the losses may be offset by gains in other assets.
The number of cryptocurrencies in a portfolio depends on the investor’s strategy and risk tolerance. Generally, having 5 to 10 different cryptocurrencies can provide a good balance of risk and diversification.
Yes, diversifying across different blockchain sectors, such as DeFi, NFTs, and Layer 1 protocols, can further reduce risk. This allows investors to capitalize on different growth areas within the crypto space, rather than relying on a single sector.
The frequency of rebalancing a cryptocurrency portfolio depends on market conditions and investment goals. Many investors rebalance quarterly or annually to adjust to changes in asset performance, while some may do so more frequently during high volatility.
Yes, stablecoins can be part of a diversified portfolio as they provide stability during market downturns. By holding stablecoins like USDT or USDC, investors can reduce volatility while still having liquidity for future trades.
Yes, over-diversification can dilute potential gains and make managing a portfolio more complicated. Holding too many cryptocurrencies, especially smaller or less liquid ones, may not provide additional benefits and could increase risk.
