Definition: The practice of investing funds across multiple asset classes to minimize risk and protect investments against volatility and rising inflation.
Use-case: Don’t keep all your eggs in one basket. Diversify!
Why diversify in crypto?
Crypto is an emerging asset class with a market capital of over $1 Trillion. Adoption of the crypto asset class is ever-increasing, and it can be beneficial for investors to allocate some part of their investment funds into crypto assets.
Let’s look at a few allocation strategies and their estimated returns, assuming you invested a total of Rs. 100 across crypto assets & equity:
Sample Portfolio Allocation Strategies
From the above scenarios, it is clear even a small allocation to crypto assets can get good returns on your overall portfolio.
Equity portfolio here refers to Nifty50 and Crypto portfolio here refers to the combination of Bitcoin, Ethereum, Binance Coin, Cardano, Ripple, Solana basis weighted market capitalization as on 31st May 2019 and 27th July 2022.
How to diversify within crypto asset classes?
Crypto as an asset class is diversified into multiple sectors having different use cases.
Crypto Sectors Based on Market Capitalization
(data as on 2PM, 28th July 2022)
- Bitcoin & Ethereum: Top 2 cryptos by market capitalization.
- Stablecoins: A type of crypto asset whose value is tied to a fiat currency, commodity, crypto asset or any other financial instrument.
- DeFi or Decentralized Finance: Allows everyone to access financial services in a transparent environment.
- NFT or Non-Fungible Token: A digital asset that represents real-world items such as real estate, artwork, event tickets, videos, etc.
- Metaverse: Allows users to interact and experience a blockchain-based virtual reality.
It is important for investors to have a well diversified portfolio within the crypto asset class like we have within equity markets.
Summing It Up!
Crypto is an emerging asset class that has the potential to redefine our financial system.
Investors should consider diversifying into crypto assets and develop a well-balanced asset allocation strategy to grow their wealth.
Don’t forget the golden rule, do your own research before you make any investment decisions!
Disclaimer: Crypto products and NFTs are unregulated and can be highly risky. There may be no regulatory recourse for any loss from such transactions. In case you have any queries, write to [email protected].
The above information represent the independent views of Primestack Pte. Ltd, Neblio Technologies Pvt. Ltd, and/or their affiliate entities and are for informational & educational purposes only. The content, information or data provided above is not an offer, or solicitation of an offer, to invest in, or to buy or sell any interest or shares, virtual digital assets/ crypto products or securities, or to participate in any investment or trading strategy. Any statement or communication made above shall not be treated as a legal, financial, investment or tax advice by the reader. The calculations, data, risk-return formulations, performance or market capitalization indicators captured above are based on the independent data sourcing including collation of public information and/or analysis performed by analysts, advisors or employees of Primestack Pte. Ltd/ Neblio Technologies Pvt. Ltd and/or their affiliate companies and/or any third party. Past performance is not indicative of any future results. The reader(s) are hereby advised to consult their financial/ legal/ tax advisor(s) before making any investment.