[ad_1]
In the past, we talked about how cryptocurrencies can serve as diversification with respect to the risks currently inherent in the rest of the economy, but what about diversification within cryptography? How can we be sure to capture a lot of "alpha" in the industry without diversifying many of our returns?
These are questions that we all have to reach our conclusions, but there are several approaches that can be taken, which will be detailed below.
The approach to Silicon Valley
It is often said that in order to achieve success as a venture capital investor in Silicon Valley it is not necessary to choose only the right companies, it simply means that you should not lose them. The earnings that investors would have made on Facebook or PayPal would have more than canceled hundreds of other investments. Understanding the laws of power in force, you can justify the possibility of putting money in almost all projects that seem feasible.
Just as Dotcom's boom had many overrated projects (Pets.com), the ICO boom has projects that are in the mere phase of contemplation, with a team that is unprecedented. These companies can be avoided, but in general, you can be less selective about your investments and fund as many "altcoins" as possible.
This gives you a growing number of chances to benefit from the rancorous returns achievable on investments like this. Bitcoin, even at a low price of $ 4500, has already surpassed most of its earnings, and is unlikely to reach more than 10 times. But it started to be valued at less than a dollar, and you can benefit from it by finding the next Bitcoin.
Hedging within an industry
Another approach that is not always possible in Silicon Valley is the coverage of an entire industry. If you see that there are a lot of blockchain solutions in the insurance space, or real estate, or the Internet of Blockchains, you have two possible paths. First, you can choose a "winner" and just put your money in that. This is more risky, but will pay more. The other option is to buy all the leading companies in the sector. This allows you to protect your bets, but reduces your profits.
What makes this industry-focused strategy attractive is that it benefits those who have acquired specific knowledge in an area. In the venture capital space, it is not always allowed for you to invest in multiple companies in the same space, due to the influence these investors can have on management.
Blue Chip Investing Route
The last route to be taken into consideration is only the continuation of the average dollar cost in big boys (Ethereum, Bitcoin, Litecoin, Bitcoin Cash, Ripple). Think of this as indexing in the S & P 500 index. It is potentially the least risky of all these strategies, but obviously it also has its potential disadvantages. There is always the possibility that newer, more advanced and better-managed coins will dispossess all the coins that are currently in the forefront of space.
Many consider Bitcoin to be a cover against other parts of its portfolio, but ignore the fact that Bitcoin could become the MySpace of the industry. Once the macro bet on the big cryptography is taken into account, it is necessary to strategize within the space to minimize unforeseen risks. It is said that diversification is the only free lunch in the financial markets, and this could apply more in the crypto markets where it is possible to enter so soon.
Featured image courtesy of Shutterstock.
