When it comes to cryptocurrency, there is always risk. Although risk cannot be eliminated, it can be adjusted to be aligned with our investment goals. Asset diversification plays a key role in minimizing the risk.
The cryptocurrency market is highly correlated to the price movements of Bitcoin. How can we create a diversified assets from a number of highly correlated assets? You may consider the following allocations between different crypto assets:
70% should be allocated to Bitcoin or Ethereum
15% to top 20 cryptocurrencies (e.g. Binance Coin, Uniswap, Cardano)
10% to top 100 cryptocurrencies (e.g. VET, Cake, Solana)
5% to low-cap crypto projects (e.g. IEO or ICO projects, DeFi yield farming)
Because the cryptocurrency markets are highly correlated with Bitcoin, we should diversify our asset allocation strategy to maximize our expected returns while minimizing our risk.