The Crypto Diversification Trap
Once upon a time, the folks at CNBC and other mainstream media outlets began promoting the idea of holding a diverse portfolio of cryptocurrencies. At face value to many this sounded like a good idea — get exposure to many different digital assets to minimize your risk if one were to fail. Was it sound advice, though? We’re here to do a post-mortem on Brian Kelly’s cryptocurrency portfolio from August 16th 2017. We’ll be using an imaginary starting portfolio value of $10,000 and the allocations designated in the image below.
For price references we’ve pulled the weekly historical snapshot from Coinmarketcap.com dated August 20th, and used the same source for today’s prices. This article is being written the evening of August 19th, 2019.
Bitcoin: Allocation of 30% ($3000 or 73,391,623 sats)
- Price Aug 20, 2017: $4,087.66
- $3000 would have bought you 73,391,623 sats.
- Price Today: $10,907.84 (+166.85%)
- Your BTC is now worth $8,005.44
- You are holding the same number of sats.
Ethereum: Allocation of 15% ($1500 or 36,695,811 sats)
- Price Aug 20, 2017: $301.43
- $1500 would have bought you 4.97627973 ETH.
- Price Today: $201.26 (-33.23%)
- Your ETH is now worth $1,001.53
- BTC Equivalent Today: 9,181,708 sats (-74.98%)
- You lost 27,514,103 sats.
Ethereum Classic: Allocation of 15% ($1500 or 36,695,811 sats)
- Price Aug 20, 2017: $13.89
- $1500 would have bought you 107.99136069 ETC.
- Price Today: $5.55 (-60.04%)
- Your ETC is now worth $599.35
- BTC Equivalent Today: 5,494,691 sats (-85.03%)
- You lost 31,201,121 sats.
ZCash: Allocation of 10% ($1000 or 24,463,874 sats)
- Price Aug 20, 2017: $241.07
- $1000 would have bought you 4.14817273 ZEC.
- Price Today: $54.08 (-77.57%)
- Your ZEC is now worth $224.33
- BTC Equivalent Today: 2,056,623 sats (-91.59%)
- You lost 22,407,251 sats.
Monero: Allocation of 10% ($1000 or 24,463,874 sats)
- Price Aug 20, 2017: $54.71
- $1000 would have bought you 18.27819411 XMR.
- Price Today: $88.85 (+62.40%)
- Your XMR is now worth $1,624.02
- BTC Equivalent Today: 14,888,535 sats (-39.14%)
- You lost 9,575,339 sats.
Ripple: Allocation of 10% ($1000 or 24,463,874 sats)
- Price Aug 20, 2017: $0.16
- $1000 would have bought you 6,250 XRP.
- Price Today: $0.28 (+75.00%)
- Your XRP is now worth $1,750.00
- BTC Equivalent Today: 16,043,506 sats (-34.42%)
- You lost 8,420,368 sats.
Metal: Allocation of 5% ($500 or 12,231,937 sats)
- Price Aug 20, 2017: $9.36
- $500 would have bought you 53.41880342 MTL.
- Price Today: $0.34 (-96.37%)
- Your MTL is now worth $18.16
- BTC Equivalent Today: 166,508 sats (-98.64%)
- You lost 12,065,429 sats.
IOTA: Allocation of 5% ($500 or 12,231,937 sats)
- Price Aug 20, 2017: $0.94
- $500 would have bought you 531.91489362 IOTA.
- Price Today: $0.25 (-73.40%)
- Your IOTA is now worth $132.98
- BTC Equivalent Today: 1,219,111 (-90.03%)
- You lost 11,012,826 sats.
PORTFOLIO SUMMARY:
- Initial investment Aug 20, 2017: $10,000
- Portfolio value today: $13,355.81 (+33.56%)
- BTC equivalent THEN: 244,638,742 sats
- BTC equivalent NOW: 122,442,305
- You lost 122,196,437 sats, which is 49.95% of your Bitcoin.
So what can we learn here? Well looking at the data, a few things jump out at me. First off, YES you are up in dollars. Your initial investment of $10,000 would now be worth $13,355.81. Some of you might be thinking: “Not bad!” Where did those gains come from though? Let’s take a look.
Three coins are responsible for your dollar profit here. BTC, XMR and XRP. Bitcoin netted you a cool $5005.44. Ripple only brought you in $250, while Monero made you even less at $124.02. Every other coin lost you money, to the tune of -$3023.65. The gains from Monero and Ripple barely even made a dent in those losses, and the only reason you stayed in the black was the higher allocation/outpaced gains of Bitcoin.
Speaking of which, how much Bitcoin did you lose?
On August 20th 2017, $10,000 COULD have bought you 2.44638742 BTC or 244,638,742 sats. With the above portfolio you would have taken a loss of 1.22196437 BTC — that’s over 122 MILLION sats (just shy of half, at 49.95% of your initial stash). If you had kept the original Bitcoin, your portfolio would instead be worth $26,684.80.
In Closing
It’s easy to let your eyes glaze over and assume just because you’re up in dollars that everything has worked out fine. In reality EVERY single one of these alts has had you hemorrhaging sats, and Bitcoin is the only coin attempting to give you transfusions while keeping pressure on the wound.
During the insanity of 2017’s bull market I got this sick feeling in my stomach that something wasn’t right. A world with endless money creation where every coin continuously appreciated in purchasing power… it didn’t make any sense. This sent me down a path to understanding Bitcoin Maximalism, and landed me here at my job with Bull Bitcoin.
While I’m all for free markets and competition, I think it’s also important to shine a light on the trend. Let’s call a spade a spade. Rolling the dice at a shitcoin casino is the “trendiest” way to toss away half (or more) of your Bitcoin. In the words of TFTC’s Matt Odell:
“Everything trends to zero when priced in Bitcoin.”
*just a quick footnote here — I am doing this late at night with not a lot of sleep. I encourage you to check over my numbers via this spreadsheet, and let me know if I messed up anywhere.
