How to diversify your crypto-investments

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I’m a big fan of mutual fund investing. It provides instant diversification so that I don’t have to analyze and research individual stocks. And it allows me to allow in broad sectors. So I can buy a technology mutual fund, so that I don’t have to choose amongst Facebook, Amazon and Netflix and worry about choosing wrong and have FOMO.

Coinmarketcap lists nearly 1,500 different cryptocoins. It can be difficult to sort through all these coins to figure out which ones you want to invest in. So similar to stocks, I find it helpful to divide them into categories, like the ones I list below. This is by no means comprehensive.

Currency – This is where the original bitcoin falls and perhaps the easiest to understand. All coins can technically be used as currency, i.e. holders of monetary value and a method of payment, but these coins are designed for this purpose alone. This is not only bitcoin but also it’s forks, Bitcoin Cash and Bitcoin Gold, as well as Litecoin. I’ll also include cross-border payments here too. This is for Ripple and Stellar Lumens which were designed to easily and quickly do currency exchange.

Platform – Ethereum, Neo, EOS, Cardano. These coins are used as a platform to design applications. The cost for building and running the applications is paid in these currencies. If you want to build a decentralized app or create smart contracts, developers will turn to these coins. Personally, I see this as the biggest opportunity for growth.

Privacy – Bitcoin is not anonymous. For more and more people, privacy is of utmost importance and coins like Monero, ZCash, Dash, Verge are all meant to be completely untraceable.

Decentralized exchanges – So the irony of trading altcoins is that many of us rely on centralized crypto exchanges to make trades and even hold our cryptocoin. It feels almost inevitable that crypto moves toward decentralized exchanges. Decentralized exchanges use coins like 0x, Kyber Networks and AirSwap.

Cloud Storage – You may already have used Dropbox, Google Drive or Microsoft OneDrive. Coins like SiaCoin, Storj, and Maidsafe are looking to create decentralize cloud storage. Some call these the Airbnb of your hard drive where you can get paid for others to use your empty hard drive space. It’s an interesting concept, but it may take a while for people to feel comfortable having their private files scattered across random other people’s computers.

Sector specific – There are also some very sector specific coins. Like Dentacoin for the dental industry and Funfair for casino gambling. I’m not surprised to see casinos pushing blockchain given the popularity of online gambling. Dentists on the other hand… My dentist’s office plays oldies songs and has a wall of paper file folders to track patient records.

 

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I promise, this won’t hurt…

So when you are deciding on whether or not to buy a certain cryptocoin, check how it compares with other coins in the same sector. Look into how this coin differentiates itself from others in the same sector. Or maybe you think the sector is so hot that you just want to buy up a slew of coins in that sector, or avoid one sector altogether.

Let me know if there are any other broad categories for cryptocoins!

 

 

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