Digital currency "diversified investment" principle

In the past two days, the overall digital currency market seems to have picked up a bit. Today, the price of Bitcoin has reached 7,200 US dollars, and the price of Ethereum has reached 180 US dollars. Since the market crashed on March 12, this is the first time that Ethereum has stood at $180 again.

However, not all digital currencies have such a recovery. Some coins that rank in the hundreds have hardly moved after the sharp drop on March 12. Not only did their prices not increase, but their trading volume was also almost negligible.

These coins are what we often call altcoins. When it comes to altcoins and mainstream currencies, investors who are new to the currency circle often say that when they talk about their investment, they will use part of their funds to buy mainstream currencies, and they will use another part of their funds to buy some that are very inconspicuous or even unnoticed. Altcoins, and consider it "diversification".

"Diversification" is a term that all investors will refer to when investing. It has a more popular saying that "don't put all your eggs in one basket". It means investing in multiple assets at the same time to spread the risk of investment.

Different people have different understandings of "diversification of investment". In my opinion, there is a very critical core point of diversification of investment: that is, no matter how dispersed it is, the target of investment must be equal in risk and return.

If the investment risk is much greater than the expected return, then this is not called diversification, but "risk investment". Not only will it not disperse risks, but it will also increase unnecessary risks.

Let's take an example: For example, there are four potential investment targets selected by investors: Bitcoin, Ethereum, BNB and a coin ranked around 500 (we call it S coin for the time being).

Under normal circumstances, the characteristics displayed by these four coins, as well as the industry consensus and perception of them are very different.

For Bitcoin, everyone's consensus is "digital gold" or the king of digital currencies. Other digital currencies may return to zero, and the possibility of it returning to zero is very small, so its risk is almost minimal. And what about its increase?

From historical experience, every bull market, its growth rate is good, but as its price is getting higher and higher, and its market value is getting bigger and bigger, in the next round of bull market, can it still have the previous growth rate? Many people are skeptical. So overall, it's the least risky, but the benefits may be limited.

For Ethereum, its ecology is the richest and most diverse among all digital currencies. However, the biggest problem of Ethereum at present is its poor performance, which not only seriously restricts the further development of the ecology, but also seriously limits the function of various decentralized applications above.

Although the Ethereum team has proposed the ambitious Ethereum 2.0, it will be several years before it can be realized. Those who are optimistic believe that its future is bright, and the price is not high now, and there will be great room for growth in the future. Therefore, its risk is greater than that of Bitcoin, but the future increase may be higher than that of Bitcoin.

For BNB, it is equivalent to the stocks issued by Binance to a certain extent, so its increase and risk are closely related to the development of Binance. Binance has a clear business model and considerable profits. It is a rare stable and profitable project in the blockchain industry. However, the biggest risk of Binance is that it is not supervised. The processing of BNB is completely decided by Binance and is not bound by any legal provisions. .

So for investors, this is equivalent to handing over their money to someone who can do whatever they want. This person is in a good mood, and when he is rational, he can share the blessings, and BNB will rise; but if an accident occurs, BNB may be worthless. Therefore, the risk of BNB is much greater than that of Ethereum, but the income looks much better than that of Ethereum, and even more optimistic in the future.

For S coin, this is a project that no one cares about. The project team has not updated the progress of the project for a long time, the project community is also lifeless, and the business and scenarios of the project are not new. Such coins are very likely to return to zero in the future, and very unlikely to be revived again. For such a currency, what we see is almost full of risks, but no benefits.

Therefore, including such coins in our investment portfolio is not to diversify risks, but to increase risks and drag down returns.

In the development process of digital currency, we must evaluate each currency in our investment portfolio according to the development at any time. Once we find that the risk of a certain product far exceeds its benefits, we must take action without hesitation. Coins are removed.

Fisher's investment method, when it comes to the principle of selling, one point is that we will sell when the investment product no longer has value. Looking at it here, in fact, the value of the investment product is getting smaller and smaller, and when it is far lower than its risk, we will sell it.

Therefore, diversification of investment is not to choose good investment products and hold them unchanged, but to constantly review their risks and returns as the environment develops and changes. Once the risks are found to be too high, such products will be reduced or even discarded. .