Bitcoin educator and entrepreneur, Jimmy Song, has posted on the benefits (or lack thereof) of a diverse cryptocurrency portfolio. He suggests a fresh argument as to why adding altcoins to a portfolio with Bitcoin makes little sense.Why Not To Put All Your Eggs In One Basket
In a stock market scenario, the reason for diversification is to reduce volatility and optimise your risk/reward ratio. In buying 10 stocks instead of one, you hedge against any catastrophic failing in that one stock. Although the stock is also subject to certain transparency requirements, so its story and reality are likely to correlate pretty closely.
In contrast, for most cryptocurrencies, the story and reality could be poles apart. The reality lies in the code, which is incomprehensible to the majority of investors. It may not be even available, leaving just the white paper, or story, to go on. Cryptocurrency does not have the same checks and balances to ensure that these correlate. In fact, there can be an incentive for the development team to over-promise and under-deliver.
The true value can be vastly overinflated by the story, as that is all most people see. The reward therefore is often exaggerated, whilst the risk is underplayed. This does not reduce your exposure to volatility.Why Bitcoin Is Different
When Bitcoin launched there was no incentive to over-promise or embellish the story. The market simply wasn’t there. The concept lived or died on the code, which was incidentally written before the white-paper and actually over-delivered.
Furthermore the Bitcoin code has been scrutinised by many thousands of people, who likely understand it better than you or I ever will. It is truly decentralised and open-source. Therefore, Song concludes that it does belong in your portfolio.
“The technical reality is usually only understood by a few and everyone else trusts that what the creators put into the whitepaper reflects reality,” ex...