The “All Your Eggs in One Basket” Theory

Should you concentrate your investments all in one place, or with one type of coin? Coin Pursuit makes the argument for research and diversification.

It's a cliché, of course, but a valid one: if you put all your eggs in one basket, and you drop it—well, you're outta eggs for a while. It's an adage that has many applications in the financial world, too. For example, let's say you invest solely in the gold market. If the value of the precious metal goes down for any reason, your entire investment is gonna lose value. The same goes if you buy stock in just one company: if they take a hit, you'll take one, as well. It's not rocket science, really—and it applies to investing in digital currencies, too.

First, it doesn't hurt to diversify; not all cryptocurrency markets are mirror images of one another. This example is purely for illustrative purposes, and isn't meant to accurately reflect today's markets, but if you invest in Bitcoins, and the market for that type of currency is fluctuating wildly, it might be wise to invest in, say, Litecoins, which—though they may have slightly lower overall value than Bitcoins—their market trends might be a little more stable. Investment decisions are very personal ones, and they're best made after studying the markets over a respectable period of time. The bottom line is: you're less likely to lose your shirt in digital currency investing (not that you're likely to in the first place; it's an illustrative figure of speech) if you select currencies that perform better over the long run. Note we said currencies; diversify!

This theory applies to cryptocurrency exchanges, too. The sad truth is, when the Mt. Gox exchange collapsed, everyone who held Bitcoin accounts with them lost their entire investments. We'll set aside the arguments of mismanagement and poor security for the sake of this discussion, but the fact is many investors who dealt solely through Mt. Gox now have nothing to show for it. We realize that trading cryptocurrency can be difficult to do without an exchange; however, it's to your benefit as an investor to spread the wealth over more than one exchange—or better yet, to store your own digital currency account offline, and access your coins only when needed.

Next Exchanges Topic: Currency Values and Trends

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