Sunday , 1 Aug 2024
Why You Should Diversify Your Digital Asset Portfolio
Institutions need to broaden their holdings of crypto holdings in order to capture the full range of innovation in the market, says Felix Stratmann, head of research at Outerlands Capital.
Digital assets may be one of the few markets where diversification still seems underappreciated. Bitcoin and Ethereum remain dominant by market cap despite a growing number of innovative new projects, and many investment products provide only a handful of concentrated positions.
Even in the more developed parts of the crypto ecosystem, such as payments or Layer 1s, we believe it is still much too early to call winners. The pace of innovation means disruption will continue to be the norm.
The nascency of the market and its fast-paced evolution also mean that an active approach to portfolio management is imperative: Diversified is not equal to passive. Building a well diversified portfolio does not mean just buying more, smaller assets. It means taking a long-term perspective on the scale and scope of the digital assets ecosystem, and positioning a portfolio to take advantage of the many different potential outcomes.
Coming out of crypto conferences like Consensus, AIMA Digital Assets, Token2049, and DAS, we are again emboldened in our assessment that the average institutional crypto portfolio is simply not exposed to enough of the disruptive use-cases being tested in digital assets today. Budding themes such as DePIN, innovative scaling solutions for Ethereum and also Bitcoin, and bringing real-world-assets on-chain all require a deep look past the largest tokens, and should encourage portfolios of digital assets spanning many sectors and project sizes.
Remember that diversifying doesn’t make a portfolio less potent - it actually gives investors more opportunities to capture winners, while still providing time-tested risk benefits. In essence, diversification gives you more for less.
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