The Alpha Zone
When it comes to Crypto, the altcoin market is where life-changing gains are made. Along with impressive gains comes a risk profile not every investor can stomach, so diversification can be a lifesaver. However, one can also diversify too heavily, and as a result, miss out on enormous gains. Many new investors tend to class all altcoins under a single umbrella. However, the altcoin landscape is extremely diversified.
This is also applicable, regarding the different risk profiles within the altcoin market. From the lowest level of risk in the form of Bitcoin to the volatile world of memecoins… altcoins are by no means a one-size-fits-all-all scenario. Understanding the different risk profiles is an imperative aspect of portfolio management. To diversify effectively, an investor must understand the risks associated with each asset, or sector.
Understanding risk also needs to be accompanied by a realistic price expectancy. An asset that is inherently risky and yet offers very little promise of significant upside is of little use to anyone. Essentially, it should be excluded from a well-designed portfolio, as its risk/reward ratio makes very little financial sense, and is likely to drag the entire portfolio down. This is especially true if the capital allocation is somewhat heavy.
The Other Side Of The Coin
Just as a diligent investor looks to exclude such assets, care is also taken to include assets that have the opposite effect. In other words, selecting a handful of assets that can outperform the benchmark, while simultaneously maintaining a healthy risk/reward ratio. Even though I advocate strong risk management and diversification practices, I always tend to have a few alts carrying a lot more weight, regarding my expectations.
These are usually micro-caps that have exceptional use cases, or slightly larger market cap projects that are well positioned, regarding future utility and adoption. In other words, they play, or will play a key role in a blockchain-based economic infrastructure. I also tend to look for projects that will offer extended periods of accumulation, before an explosive surge.
This does not imply stagnation, but rather a more modest appreciation with an explosive closing. As I have mentioned before, this is how I envision tokenization and RWA playing out in this bull market. I believe the tokenization of RWA will experience an explosive move in the final chapter of this bull market. That does not exclude current gains. However, I believe the gains in the final stages of this bull market will significantly dwarf whatever gains are realized in the interim.
If, as an investor, you have exposure to assets that fit this criteria, you can protect your portfolio while simultaneously being positioned for explosive growth. Risk has to make sense. I have rejected numerous micro-caps simply because the risks are not offset by prospects and other fundamental elements. A tiny market cap is not indicative of growth… it can sometimes be indicative of death.
Final Thoughts
In my opinion, every portfolio needs a few “heavy hitters”. Relatively stable altcoins, and yet simultaneously offering alpha returns. Once again, study and design are an imperative part of the process. Portfolio management and construction require a lot of thoughtful planning. Altcoins need to be effectively grouped via a well-designed portfolio if you are to experience significant growth. All the best. Catch you next time!
Disclaimer
First of all, I am not a financial advisor. All information provided on this website is strictly my own opinion and not financial advice. I do make use of affiliate links. Purchasing or interacting with any third-party company could result in me receiving a commission. In some instances, utilizing an affiliate link can also result in a bonus or discount.
This article was first published on Sapphire Crypto.
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