Crypto asset diversification as a trading strategy – Part II

The diversification of crypto assets is not a new strategy in itself, as its operating principle comes from classic or traditional financial economic models, the main objective of which is to give greater optimisation to our investments.

Therefore, crypto asset diversification essentially aims to maximise the risk-adjusted returns of the portfolio by incorporating a multiple or varied investment strategy.

The ecosystem of crypto asset diversification gives us the certain possibility to properly manage the portfolio and ensure a success story, as by formulating a multiple or varied investment policy.

This varied investment policy in more than one cryptocurrency by executing diversification strategies increases the security of our investment, and thus decreases the risk of financial loss.

The diversification of crypto assets consists of investing in more than one cryptocurrency by executing varied investment strategies, i.e. investing by dividing our capital into multiple parts, which allows us to buy more than one crypto asset at the same time, in order to be able to successfully avoid the prevailing volatility in the cryptocurrency market.

Successfully navigating the ongoing challenge in the face of volatility in the cryptocurrency market involves devising more assertive investment strategies, including a) Analysis, and b) The 1-4 rule.

In terms of analysis as a strategy for diversification, it consists of investing in a diversified way in crypto assets that we have analysed through a rigorous research process, which provides us with key data such as; type of asset, price, place where it was created, team of developers, market capitalisation, inflationary fluctuation, among other elements of equal or greater relevance, which give us a broader perspective to design our diversified investment strategy.

Regarding the 1-4 rule, a fundamental strategy in optimal portfolio management, it pursues an investment methodology of diversification of crypto assets under a four-part balanced capital splitting scheme.

Its applicability consists of dividing 100% of the capital 4 times, i.e. in portions of 25% and then investing each resulting portion in 4 crypto assets that we have previously selected to make our diversified investment.

➊ Anyfantaki S., Arvanitis S., and Topaloglou N Diversification, integration and cryptocurrency market. Link

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