“Digital assets may be one of the few markets where diversity is still underrated. Bitcoin and Ethereum still dominate in terms of market cap despite the rise of innovative new projects. But there is more to it than diversity. 🤔

In a dynamic market like crypto, diversity is important to gain exposure to the diverse and evolving mix of themes and sectors built around blockchain technology. Diversification is about solving for the power law distribution, where a portfolio's return is determined by a few high-yielding investments versus a larger number of investments producing low or negative returns. This is well documented in venture capital (VC) investments, and the concept applies to digital asset investments, namely investments in disruptive technology start-ups. Diversification ensures that your portfolio has enough chances to score big winners over time. 🎯

A concentrated portfolio containing just a handful of tokens will struggle to capture the diversity of exciting crypto use cases being developed today. Take, for example, the 10 largest cryptocurrencies by market capitalization - a popular version of a ready-made "diversified" portfolio. Here, essentially, there is a mix of currencies and Layer 1s. While these larger tokens are sometimes viewed as less risky due to scale, this selection fails to capture much of the current innovation happening in crypto. 😅

Portfolios should be positioned to capture emerging themes and new directions as projects continue to seek innovation to find product-market fit. Even in the more advanced parts of the crypto ecosystem, such as payments or Layer 1s, we believe it is still too early to determine the winners. The pace of innovation means disruption will continue to be the norm. 🚀

Diversification doesn't make the portfolio less effective – in fact, it gives investors the opportunity to capture winners while still providing tested risk benefits. In essence, diversity gives you more with less. 💪

So, what do you think? I'm waiting for your comments!#DeFi#Web3"