When Cryptos of a Feather Flock Together: Does Diversification Matter?
12 July 2021 Written by Mike Sites
Which One of These are Not Like the Other?
The answer is none, they are all alike. Consider for example, the market movements as of 5 July 2021 in the chart below of the top crypto assets, and see if you spot any significant differences:
Are you seeing the pattern? What does this mean?
One Basket It Seems
Don’t put your eggs all in one basket! While there are differences in the chart above at the micro level, the macro view is identical. And the list goes on with respect to the various cryptocurrencies that all move together in unison.
Based on these synchronized movements of the crypto market, if I was ‘diversified’ and owned a little of each of the above assets, I’d either win big or lose big, but I’d certainly not be protected, nor diversified.
What can be done?
There are a few options in which you could consider, but it’s difficult to accomplish.
1. Be knowledgeable and proficient enough at interpreting trends and charts that you can day trade or trade hour by hour to cash in on the wins and avoid the losses. Unless day trading becomes your full-time occupation, then unfortunately for most of us, this isn’t a real option.
2. You could have connections to the manipulators or certain influencers so you can take advantage of the pump-and-dump scenarios. Maybe Elon Musk will give you a heads up before his next tweet that says, “buy Doge”, or “dump Bitcoin”, or even, “I’m buying a lot of Bitcoin” yet again. Or perhaps you’ll be on the right Reddit Group for that coordinated effort to win by toppling of the next targeted hedge fund. Unfortunately, again, most of us aren’t even in the position to know these inside tracks.
3. There is of course the long-term buy-and-hold strategy. With a long-term investment strategy, you could leverage the eventual appreciation of the markets. It’s no secret that buying and holding Bitcoin in the early days would have made anyone millions many times over. The same is true for the stock market investors, which yields an approximate 12% annual return over the long haul. So, taking the long view is a real option, but you must have the stomach and willingness to hold when everything else tells you to sell.
4. There is also the option or strategy of Dollar Cost Averaging. This is essentially committing to invest the same amount of money towards your investment each month regardless of the current price. For example, you commit to buy a crypto asset each month for $500 per month ($6000 per year). If the price of the crypto is higher, you buy at a premium, but if the next month the price of the crypto asset is lower, you buy at a discount. Over the course of the year, you’ll take advantage of compounding plus the consistency of buying more volume.
What about Stablecoins?
Over the last several years stablecoins have been making progress as a hedge against the volatility of the crypto markets. While Stablecoins offer protection against bear markets, they have yet provided any growth advantages when it comes to a bull market. The fact of the matter is that Stablecoins run flat. No loss and no growth.
Stablecoins are of course still new and have their own unique challenges beyond having no upside potential. What you should watch for in Stablecoins is ensuring they can be decentralized and free of any centralized bank influence or controls.
Cryptium: A Monotonic Token
What if there was a hybrid token between a Stablecoin- that protects against the downside of market volatility, and an Altcoin- that takes advantage of the upside growth from the market gains? Such a hybrid token would certainly warrant an investment, so as to diversify a portion of an investor’s crypto portfolio. Such a token would be uncorrelated to other crypto-currencies and provide actual diversification benefits. And because of smart contract innovations that permit programmable money, such a token is possible. That token is Cryptium.
Note that Cryptium was built to ensure the value of your asset is protected. So, even though the price may fluctuate, the value is guaranteed and growing. This is accomplished with an innovative solution called, an Elastic Supply Mechanism, Cryptium then leverages this mathematical function, called monotonical non-decreasing functions, which is then hard coded into the smart contract to produce the positive outcome and growth as illustrated in Figure 1 above. Thus, taking advantage of the best from both words of Stablecoins and Altcoins.
Buy Cryptium from Uniswap here
Learn more about Cryptium, chat with the team, others in the community, and have your say in shaping the future of our cryto-token.