Prominent Bitcoin (BTC) developer Jimmy Song has argued that diversifying a cryptoasset portfolio “makes little sense.”
More specifically, Song believes adding altcoins to an investment portfolio that has already allocated a certain percentage to Bitcoin will not improve the chances of receiving a higher return on invested capital.
Asset Diversification “Makes Sense” For Traditional Investment Portfolios
As Song explained, usually investors seek to diversify their investments in order to statistically reduce the risk of “permanent loss” and reduce the negative effects of volatility.
Acknowledging that asset diversification “makes sense” for more traditional investments such as acquiring shares of common stock in listed companies (as these are based on fairly safe assumptions and are regulated in a more consistent manner), Song wrote:
The reality of a cryptocurrency [and related investments] is in the code which, unfortunately, is very dense, hard to read and impossible to understand for a large [number] of people.
The Bitcoin developer explained that cryptocurrencies exist in a “digital realm” which means that the code and the network on which they are built is their “reality.”
Although the “underlying reality” of cryptocurrencies can be analyzed, Song believes it’s not practical “even for experienced developer” to fully comprehend and determine the legitimacy of a cryptocurrency platform in a reasonable amount of time. This, as the computer code used to develop a cryptocurrency might be too complex for most people to fully understand.
Song also mentioned that in most cases there’s “an abundance of marketing material” about various cryptocurrency projects. According to Song, marketing strategies for cryptocurrencies involve writing fancy whitepapers “that purport to show the details of the actual system, but are not rigorously defined like code is.”
Promoting “Marketing Stories” Is “Cheaper And Easier”
Although this documentation is more “understandable”, it is usually released before the actual product (the cryptocurrency) is created, Song noted. He also revealed that the “difficulty and/or expense” of accurately determining the legitimacy and usefulness of cryptocurrencies often leads to people promoting the “marketing story” as a “shortcut.” This, as it’s “cheaper and easier”, Song claims.
Song further explained that the marketing strategies related to traditional stocks “cannot diverge much without … serious penalties.” However, in cryptocurrency, Song wrote that there is “no enforcement mechanism” which would require the “reality to conform” to regulatory guidelines or some other objective evaluation criteria.
Instead, Song thinks there are “incentives to over-promise on the story and under-deliver on the reality.”
More Than 500 Active Bitcoin (BTC) Developers
Meanwhile, Song argued that investing in Bitcoin (BTC) makes sense because it has been “pored over technically by thousands, if not tens of thousands of people over the years.” Moreover, the developer noted that because Bitcoin is the very first cryptocurrency, its codebase has been carefully studied and scrutinized by a large number of software architects throughout the world.
Notably, Song revealed there are currently over 500 contributors that are involved in the ongoing development of the Bitcoin protocol. This makes Bitcoin the “largest open-source cryptocurrency project”, Song added.