Buying Crypto? Invest Diversely: Former GS Analyst
Over the past several years, as the cryptocurrency industry has risen in prominence, bitcoin (BTC) has continued to capture the most investor interest and attention. Even when analysts predicted that other digital currencies would likely overtake BTC, the world's largest cryptocurrency by market cap has managed to hold its spot at the top of the list. As a result, investors interested in joining the cryptocurrency space have often been tempted to pour money into BTC alone. Now, a former vice president at Goldman Sachs' Investment Management Division suggests that this may not be the best strategy.
Matta also addressed the phenomenon of the "exploding cryptocurrency," or the digital currency that, new to the market, suddenly gains a huge amount of value over a short period of time. Matta believes that these tokens and coins must retain their position beyond this initial spike of interest and value in order to earn their place in a portfolio of cryptocurrency investments.
While Matta is highly confident in the long-term prospects of cryptocurrencies as a group (provided that investors choose their holdings carefully), his view is not shared by many other analysts. For instance, one argument that pushes back against Matta's suggestion is the tendency for altcoins as a group to tend to follow bitcoin's price movement. If a group of 20 coins moves in a similar fashion to BTC, is it truly a diversified portfolio?
Investing in cryptocurrencies and Initial Coin Offerings ("ICOs") is highly risky and speculative, and this article is not a recommendation by Investopedia or the writer to invest in cryptocurrencies or ICOs. Since each individual's situation is unique, a qualified professional should always be consulted before making any financial decisions. Investopedia makes no representations or warranties as to the accuracy or timeliness of the information contained herein. As of the date this article was written, the author owns bitcoin and ripple.
Diversity in Cryptocurrency Investments Is Key
Christopher Matta, the former Goldman Sachs leader and co-founder of Crescent Crypto Asset Management, suggested in an interview with CNBC's "Fast Money" that investors would be safest to hold a large variety of altcoins, as opposed to bitcoin alone. Matta's reasoning was straightforward; a diversified basket of cryptocurrencies offers better risk-adjusted returns, Matta suggested.Matta also addressed the phenomenon of the "exploding cryptocurrency," or the digital currency that, new to the market, suddenly gains a huge amount of value over a short period of time. Matta believes that these tokens and coins must retain their position beyond this initial spike of interest and value in order to earn their place in a portfolio of cryptocurrency investments.
Matta's Holdings
Matta revealed that Crescent's holdings focus on bitcoin, ethereum, ripple and bitcoin cash. For Matta's team, liquidity is an important consideration as well; any digital currency the firm invests in must be available for transaction on multiple exchanges. Further, Matta will not invest in any digital currency that cannot be held in cold storage. This is a means of protection against security threats like exchange hacks.While Matta is highly confident in the long-term prospects of cryptocurrencies as a group (provided that investors choose their holdings carefully), his view is not shared by many other analysts. For instance, one argument that pushes back against Matta's suggestion is the tendency for altcoins as a group to tend to follow bitcoin's price movement. If a group of 20 coins moves in a similar fashion to BTC, is it truly a diversified portfolio?
Investing in cryptocurrencies and Initial Coin Offerings ("ICOs") is highly risky and speculative, and this article is not a recommendation by Investopedia or the writer to invest in cryptocurrencies or ICOs. Since each individual's situation is unique, a qualified professional should always be consulted before making any financial decisions. Investopedia makes no representations or warranties as to the accuracy or timeliness of the information contained herein. As of the date this article was written, the author owns bitcoin and ripple.
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