Portfolio Diversification

Definition ∞ Portfolio diversification is an investment strategy that involves allocating assets across various types of investments to reduce overall risk. The principle is that different asset classes may perform differently under varying market conditions, thereby mitigating the impact of poor performance in any single asset. This approach is fundamental to prudent investment management.
Context ∞ The current conversation around portfolio diversification in the digital asset space centers on how investors can effectively allocate capital across different cryptocurrencies, DeFi protocols, and blockchain-based sectors. Debates involve the correlation between digital assets and traditional markets, as well as the development of new investment vehicles that offer diversified exposure. Future developments to observe include the emergence of more sophisticated risk assessment tools for digital assets and the increasing institutional adoption of diversified crypto strategies.