Crypto diversification isn't portfolio diversification
You've got a broad crypto portfolio, invested intelligently and diversified among a broad range of cryptocurrencies and tokens. As an intelligent, modern investor you've read up on the various coins and their underlying technologies. You can tell the good currencies from the junk, you're a step ahead of most.
Sadly when things go badly for the crypto markets, your intelligent, diverse crypto portfolio isn't likely to be much more resilient than that of a newbie investor. Everything is likely to get dumped as people panic, regardless of whether the currency has a solid underlying technology, or whether it's a junk coin.
When a market crash comes, good cryptos and bad are going to take the hit together. Intelligent investors who are more knowledgeable might be quick to re-invest into the most valuable cryptos after the crash, but that's not going to save anyone from being pulled down by the sell-off.
On January 17 we saw the year's first major price dip, and the good cryptos and the bad all lost value in a similar fashion. However, on January 17 many things didn't see a significant price drop: Stocks, bonds, fiat, cars, houses, gold bars, brick-and-mortar businesses...
Your next investment? [Source]
Don't get me wrong, there's plenty of money to be made in cryptocurrency investment - But diversifying your portfolio should involve more than buying a wide variety of cryptocurrencies and hoping that the crypto market doesn't crash. We know we're in a bullish market and we can expect a major correction or an outright crash looming at some unknown point in the future. If you're sitting on tens of thousands of dollars in crypto gains, it might be time to start siphoning off a bit of your profit and diversifying into stable non-crypto investments so that you're ready for that crash when, or if, it comes along.
Those of us who have over-invested, or are greedily awaiting more when we have already won a lot in the crypo markets might be gambling with more than we can afford to lose, when we could settle for a stable nest egg in the form of a real estate investment, funding our first business, or even buying into a shiny chunk of gold, while still keeping up modest crypto investments for future growth.
There's plenty of reasons to be optimistic about the crypto markets in 2018, and I can't fault anyone for keeping a chunk of money invested in the markets, but we should all step back and examine where we are financially compared to where we were a year ago, then evaluate whether that position is something that we'd be ok with losing over greedy investments and a chance downturn in the markets.
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Thanks for reading,
-Matt
So true @weaselhouse! Being overweight anything can be a psychologically risky proposition, but especially if that something has already just finished a historic rally!
When things get expensive, the smart thing to do is SELL. Followed by buying something undervalued (preferably something that cashflows).
As Rick Rule says:
Summary of my whole post, right here!
Sadly many investors don't seem to realize this and continue to blindy HODL in the assumption that we're in some sort of never-ending bull market that will not see a correction.
I fear that many of the "crypto rich" will end up just like most of the lottery winners. Dead broke in a few years at most.
To keep money around instead of losing it you need to have the proper money mindset. Money only stays close to those that know how to treat it like the lady it is! :D
agreed
Exactly, this is why you don't invest what you can't afford to lose, I invest in cfds, stocks, crowdfunding (like property investment, loans, small businesses). There's plenty of ways to diversify outside crypto. :)
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