“Never keep your eggs in one basket” might be the statement you hear time and time again from capital market traders, analysts, and advisors alike. While this investment thesis may be applicable in traditional markets, some believe that this diversification tactic is not applicable to crypto markets.
Don’t Put Your Crypto Eggs Into One Basket?
As reported by NewsBTC, Roger Ver recently made an appearance on CNBC’s ‘Fast Money’ segment to discuss his outlook on this market. While much of his time on-air was filled with Bitcoin Cash-related discussion, CNBC viewers likely focused on this comment regarding diversification, which is as follows:
“I hold more Bitcoin Cash then anything else, but I have some Ether, some ZCash, some ZCoin, Dash, Monero and I still hold BTC as well. So a little bit of everything is a good idea, including a bit of Ripple (XRP) and Stellar (XLM). Diversify, diversify, diversify is the name of the game.”
Although “diversify, diversify, diversify” may sound like a no-brainer for any seasoned investor, Samson Mow, the Chief Strategy Officer at Blockstream, begs to differ. Mow, who is often critical of Ver’s beliefs and statements, brought up his talk he made at South Korea’s Blockfesta conference to rebut the Bitcoin Cash proponent’s sentiment on diversification.
“Diversify, diversify, diversify?” That’s the worst advice possible because #cryptocurrencies are highly correlated. In my #Blockfesta talk I showed how diversified portfolios perform over a year. If you just bought $BTC you’d be up 54% but losses increase as you diversify. #HODL pic.twitter.com/Sl7atlMd0w
— Samson Mow (@Excellion) August 28, 2018
The Blockstream executive first noted that “diversify, diversify, diversify” is the “worst advice possible,” noting that the price action of a majority of cryptocurrencies is “highly correlated.” While not explicitly stated, Mow is essentially alluding to the fact that Bitcoin, which has historically been at the forefront of crypto, should be the sole focus of any portfolio. Backing this claim, the Bitcoin (BTC) proponent pointed out that if you bought only BTC one year ago, you would be up 54%, but if you diversified into the top 16 crypto assets, you would be down by 21%.
While his aforementioned criticism highlighted a short-term scenario (one year), he also added that a focus on Bitcoin may be beneficial in the long run as well. Mow noted that “if you bought anything other than BTC and LTC to hold back in 2013, you’d be thoroughly REKT.”
A majority of 2013’s top 20 crypto assets have all but faded out of existence, with newer projects like Ethereum, Monero, and EOS ousting Namecoin, Peercoin, and Feathercoin, which all used to be the crème de la crop back in their hay day. Not only have these little-known projects faded from public memory, but some have totally abandoned, with their token values dropping off the face of the Earth.
Mow seems to be convinced that this same occurrence will happen in today’s markets, speculating that a majority of altcoins are posed to see hefty losses over the long-term.
However, some were not convinced by Mow’s arguments, with skeptics pointing out his allegiance to Bitcoin maximalist thought process, which would have evidently skewed his opinion on the long-term prospects of altcoins. Others noted that his investment method may work in a bear market, but in a bull market, diversification may actually be key. As the market ran in 2017, Bitcoin dominance fell below 80% for the first time ever, leading ‘altcoin maximalists’ to believe that Bitcoin’s time as a crypto monarch had fully elapsed.
Regardless, there did seem to be a common thread of agreement between those on both sides, which was that taking CNBC Fast Money’s crypto advice to heart may be the “fastest way to lose money.”
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