Digital Asset Diversification

Definition ∞ Digital asset diversification is the practice of allocating investment capital across various types of digital assets to mitigate risk. This strategy involves holding a range of cryptocurrencies, stablecoins, non-fungible tokens, or other blockchain-based instruments. The goal is to reduce portfolio volatility by spreading exposure across assets with differing risk-reward profiles and market correlations. It is a fundamental principle of sound investment management in the crypto space.
Context ∞ The discourse around digital asset diversification often concerns the high correlation between many cryptocurrencies, which can limit the effectiveness of traditional diversification strategies. Investors debate the optimal allocation between different digital asset classes and their weighting against traditional assets. Future trends suggest a greater differentiation among digital assets, allowing for more effective diversification as the market matures.