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Why diversification is key to successful crypto investing

It protects investors against too many bad choices and, in the crypto space, gives them exposure to potential superstars.
Image: Bloomberg

Bitcoin has shot up 200% a year for the last decade, making it arguably one of the best investments of all time. This week it touched R1 million, and looks set to burst through this level to set new all-time highs.

Even more spectacular is Ether, the cryptocurrency of the Ethereum blockchain. It has gained more than 1 000% over the last year.

Gains like these are hard to beat on the stock market, but not impossible. Tesla is up nearly 200% over the last 12 months, and Microsoft 52%. Locally, on the JSE, Royal Bafokeng Holdings is up 100% over the last year.

The question many investors want answered is how to spot these superstars before they take off.

However, investing all your money in one stock or one cryptocurrency – even though the latter’s gains have been spectacular over time – inevitably proves itself to be folly, time and again.

As Warren Buffet famously said: “Diversification is protection against ignorance. It makes little sense if you know what you are doing.”

Those who know what they are doing, like Buffet, can adopt a more targeted (and less diversified) approach to investment. And diversification applies as much to cryptocurrencies as it does to the stock market.

What does ‘portfolio diversification’ mean?

Diversification is a relatively simple concept.

At its core, it is the idea of spreading risk across multiple investments with exposure to various sectors. The idea is that you are not too exposed to a single investment, or asset class, should the investments underperform. A good example of this is Steinhoff, which at one time accounted for a large percentage of the JSE’s Top 40 index. Those who weighted their stock portfolios heavily in this stock would have suffered significant losses when it was discovered that the company was manipulating its books.

Just as you wouldn’t invest all your capital in cryptos, you wouldn’t invest all your capital in Steinhoff shares because of the potential for loss.

Brett Hope Robertson (BHR), investment analyst at Revix, explains the merits of diversification.

Is it a good game plan to diversify in cryptos?

BHR: The short answer is yes.

Due to the fact that this is an emerging asset class with high volatility, it is a smart idea to invest across a broad market of cryptocurrency and not put all your eggs into one basket, so to speak. Another thing to merit is that people should only invest money they are able to lose, and this goes for all early-stage investments.

Just this year, for example, Bitcoin came close to R1 million in April, and then dropped by more than 50%. Other cryptos suffered an even more dramatic drop.

So how do we solve this issue? What can we do to reduce this volatility?

Revix has set out to solve the problem by offering customers easy to invest products that use diversification to help reduce risk and allow you to own multiple cryptocurrencies in one single investment – we called them crypto ‘bundles’:

  • The Top 10 Bundle gives clients exposure to the broader crypto market. This bundle spreads your investment over the 10 largest cryptocurrencies as measured by market cap. Each qualifying crypto has a 10% cap in the bundle, which gets reweighted monthly. This bundle has appreciated by more than 700% over the last 12 months, compared with 317% if you invested in Bitcoin alone.
  • The Smart Contract Bundle invests your funds equally in the top five cryptos focused on smart contracts, like Ethereum, Solana and Polkadot. In much the same way that Android and iOS operating systems work with mobile applications, smart contract cryptocurrencies aim to provide the blockchain infrastructure to enable developers to work independently and creatively to build applications on top of them. This bundle has shot up over 820% over the last 12 months.
  • The Payment Bundle is invested in the five biggest cryptos focused on making digital payments cheaper, like Ripple, Stellar and Bitcoin Cash. This bundle has appreciated nearly 330% over the last year.

How can Revix help me to diversify?

BHR: For newcomers to crypto, choosing one of the bundles I mentioned above makes sense.

The fact of the matter is this – some cryptos will outperform others, some are fly-by-night cryptos that will be gone tomorrow, and others will be around for the long term.

The beauty of the Revix bundles is you don’t have to pick which crypto is the winner, the bundle automatically picks the biggest, and therefore, the most reputable cryptocurrencies for you.

All you have to do is pick the theme you believe in most.

Whether that is just believing in crypto in general (Top 10 Bundle) or believing that smart contracts will take the world by storm (Smart Contract Bundle), all the hard work is taken care of by Revix.

If a new cryptocurrency comes along and knocks another coin out of the bundle, Revix is constantly reweighting its bundles monthly to keep you up to date with the fast-moving world of cryptocurrencies.

Why must I diversify? What are the long-term advantages?

BHR: The performance of the Revix bundles has historically been spectacular, proving that a diversified bundle has outperformed a direct investment in Bitcoin, for example. By investing in the bundles, you are getting exposure to some brilliant cryptos. The long-term advantage is that you will always have some exposure to the superstars that often come out of nowhere and into the Top 10, or Top 5, but you also have exposure to tried and tested cryptos, like Bitcoin and Ethereum.

Looking into the near future, what is best: standalone assets or bundling all of them up?

BHR: We are currently in another bull cycle, rather similar to what we experienced in 2013 and 2017. Bitcoin traditionally sprints ahead at the start of a bull run, then hands over the baton to altcoins like Ethereum and Solana. This is exactly what happened in recent weeks. Unless you are an experienced trader, I don’t think there is a better way to gain exposure to this bull cycle other than through the Top 10 Bundle, the Smart Contract Bundle, and/or the Payment Bundle.

Revix – Zero purchase fees on Revix bundles

Revix, a Cape Town-based crypto investment platform, is offering crypto investors a prime opportunity to add Revix’s diversified crypto bundles to their portfolios.

Between November 12 and 18, you will pay zero fees when you buy the Top 10 Bundle, Smart Contract Bundle or the Payments Bundle with ZAR or GBP.

Revix is backed by JSE-listed Sabvest and offers access to all of the individual cryptocurrencies and bundles mentioned in this article.

You can get started with as little as R500. Sign-up is quick and effortless, and you can withdraw your funds at any time.

About Revix

Revix brings simplicity, trust and great customer service to investing. Its easy-to-use online platform enables anyone to securely own the world’s top investments in just a few clicks.

Revix guides new clients through the sign-up process to their first deposit and first investment. Once set up, most customers manage their own portfolio but can access support from the Revix team at any time.

For more information, please visit www.revix.com

This article is intended for informational purposes only. The views expressed are not and should not be construed as investment advice or recommendations. This article is not an offer, nor the solicitation of an offer, to buy or sell any of the assets or securities mentioned herein. You should not invest more than you can afford to lose, and before investing, please take into consideration your level of experience, investment objectives and seek independent financial advice if necessary.

Brought to you by Revix.

Moneyweb does not endorse any product or service being advertised in sponsored articles on our platform.

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