6 Crypto Asset Classes To Diversify Your Portfolio
Diversification is a technique that reduces risk by allocating investments among various financial instruments and industries, allowing you to decrease exposure to risk and maximize your risk-adjusted return by not placing all your bets in one place.
You may already be diversifying your investment portfolio with cryptocurrencies, however, there are many different asset classes of cryptocurrencies themselves (Crypto-Assets).
We’ve rounded up 6 major Crypto-Asset Categories that may diversify your crypto portfolio.
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1. Currency Tokens
Primarily used as Money / Store-of-Value, currency tokens are native blockchain assets intended to be used as money. ‘digital-cash’ or ‘digital-gold’.
Bitcoin: is the first decentralized digital currency. Bitcoin made it possible for digital goods to be scarce (uncopyable) without any centralized institution controlling it. Bitcoin is used as electronic cash and digital gold.
Other Notable Projects: Litecoin, Stellar Lumens, Ripple
2. Privacy Tokens
Are also currencies but incorporate privacy-focused decentralized technology designed to make it difficult or impossible for 3rd parties to track the flow of coins from one transactor to the next.
Monero: is an open-source, privacy-focused currency token, where all transactions offer strong unlinkability and untraceability.
Other Notable Projects: ZCash, ZCoin, Verge
3. Platform Tokens
Are required to use general purpose decentralized networks that support a wide variety of possible applications. Platform tokens are often used specifically to mediate use of the specific blockchain platform.
Ethereum: is a decentralized ‘smart contract’ platform. In addition to executing payment-style transactions like Bitcoin, arbitrary code (programs) can be run on Ethereum. This opens the possibility for decentralized applications and organizations and offers a rich programming environment for development of new companies and technologies on a already well adopted platform.
Other Notable Projects: NEO, QTUM, VeChain
4. Utility Tokens
Utility tokens are native to decentralized networks that are designed for specific application types. That is, they are open networks but designed with a specific use-case in mind.
Golem: is a network and token used to facilitate a decentralized market for computational resources (CPU/GPU power).
Other Notable Projects: SiaCoin, Augur, OmiseGo
5. Exchange Tokens
This sector refers to utility tokens that exist primarily on centralized exchanges for use on those exchanges, typically to replace fees.
Binance Coin: for use on the exchange’s trading platform to pay fees. Fees paid in Binance Coin are discounted.
Other Notable Projects: Kucoin Shares
6. Decentralized Exchange Tokens
Decentralized exchange platforms allow the conversion of one Crypto-Asset to another without a middleman (government regulated exchange) mediating the transaction.
0x: is an open, permissionless protocol allowing for ERC20 tokens to be traded on the Ethereum blockchain.
Other Notable Projects: BitShares
Many of the Crypto-Asset categories have a variety of projects competing for market share. Take into account their:
Product / Function
Size of Community / Adoption
Aligned Incentives / Governance
Do your own research (DYOR) and invest in projects you see long-term value in.
The above references are an opinion and are for information purposes only. They are not intended to be investment advice. Seek a duly licensed professional for investment advice.