Articles
July 28, 2022

Why diversification is the best strategy for crypto investing

We all like to think we're experts on the market or that we can time it exactly. The unfortunate reality of investing, however, is that there are a million factors that impact the market and it is impossible to know exactly what is going to happen. For this reason, investing in a high quantity of diverse market segments is the best strategy.

Diversified investments are protected from one market segment tanking an entire portfolio. Imagine if you only invested in metaverse tokens and the entire metaverse market segment ended up being a fad. You would lose a majority of your money. However, if you only invested 25% of your total portfolio in the metaverse you would lose, at most, 25% of your portfolio.

Diversification also allows you to catch segments of the market that do really well without risking all of your funds in one area. As previously mentioned, you could invest all of your portfolio in one market segment, but it is unlikely that you choose a market that will do well. For this reason, having your "eggs spread across many baskets" can allow the wins on some of your investments to pay for the losses on others. For example, your losses on the metaverse might be paid for by your successful investment in crypto lending protocols.

The crypto market is even more volatile than the traditional finance markets which makes diversification even more important when investing in crypto. The potential upside is much larger, but so is the downside. For this reason, Coherence provides baskets that allow you to easily diversify into different crypto market segments. We are one of the first platforms that allows you to do this with absolutely no crypto knowledge. All you need is to have a high level understanding of what market segment you desire to invest in, and we'll take care of the rest for you.

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