Learn crypto portfolio allocation, correlation analysis, and rebalancing strategies to scientifically reduce investment risk.
Why Diversify?
"Don't put all your eggs in one basket" is the golden rule of investing. Diversification can't eliminate all risk but significantly reduces the impact of any single asset's crash.
Dimensions of Crypto Diversification
By Market Cap
- Large caps (BTC, ETH): 50-70%, higher stability
- Mid caps (SOL, ADA, DOT): 20-30%, growth potential
- Small caps: Under 10%, high risk/high reward
By Category
- Layer 1 blockchains
- Layer 2 scaling solutions
- DeFi tokens
- Infrastructure tokens
- Meme coins (small allocation)
By Use Case
- Store of value (BTC)
- Smart contract platforms (ETH, SOL)
- Payments (XRP, XLM)
- Oracles (LINK)
Correlation Analysis
Crypto assets tend to be highly correlated (especially during selloffs). For true diversification:
- Choose assets from different sectors
- Consider allocating some stablecoins as a hedge
- Monitor historical correlation coefficients
Rebalancing Strategies
Periodic Rebalancing
Monthly or quarterly, adjust allocations back to targets. E.g., if BTC grows from 50% to 60%, sell some to redistribute.
Threshold Rebalancing
Trigger rebalancing when any asset deviates from target allocation by a set percentage (e.g., 5%).
Beginner Portfolio Suggestion
- BTC 40-50%
- ETH 20-30%
- Major altcoins 15-25%
- Stablecoins 5-10% (dry powder)
Important Notes
- Diversification doesn't mean buying as many coins as possible — 5-10 is usually sufficient
- Systemic risk (market-wide crashes) can't be avoided through diversification alone
- Review and adjust your portfolio regularly