altcoins to their crypto portfolio
Jimmy Song, a Bitcoin developer and investment partner at Blockchain Capital, shared his thoughts on the diversification of the crypto portfolio in his Medium blog.
In his publication, Song made it clear that it makes no sense for investors to add altcoins to their investment portfolio. A common reason for diversification is the investor’s desire to optimize the risk-reward ratio, that is, it’s about reducing volatility. So, for example, the purchase of ten shares instead of one allows the investor to be safe from the potential deep collapse of indicators on one of them.
Song argues that since the shares of the regulator are subject to certain requirements regarding transparency, and the companies are responsible, the “history of the shares” and reality are likely to be closely linked. So, Song believes that the risks and benefits associated with stocks are understandable, and therefore diversification makes sense, which is not the case with the crypto industry.
The developer claims that the reality of cryptocurrency is their code and the network in which they operate and which provides protection. Unfortunately, the code is incomprehensible to most investors. So, investors have to trust only documentation on cryptocurrency, that is, such a “marketing history”. The true value of crypto assets, according to Song, is often overestimated by such stories, and therefore investors underestimate the risks and exaggerate possible profits. Song believes that investing in Altcoins without knowing the code is the same as investing in stocks that are traded in the “pink sheets” system without prior research. Such an approach does not reduce volatility in any way, it does not eliminate risks, on the contrary it negates the whole point of diversification.
