A Concentrated Portfolio is an investment approach characterized by allocating capital to a limited selection of distinct assets, or by committing a significant portion of funds to a few chosen investments. In crypto investing, this typically translates to substantial allocations in a small number of cryptocurrencies or decentralized finance (DeFi) protocols, seeking outsized returns from high-conviction positions.
Mechanism
This strategy requires in-depth fundamental or technical analysis of a select group of crypto assets, followed by the deployment of significant capital into those specific assets. The operational structure depends on rigorous active management, continuous performance monitoring of each individual asset, and proactive risk management tailored to the unique risks associated with each position, rather than relying on broad market diversification.
Methodology
The strategic rationale behind a concentrated portfolio aims for superior investment returns by identifying potentially high-growth or undervalued crypto assets, accepting higher idiosyncratic risk for the potential of greater gains. This contrasts with broad diversification and necessitates a robust framework for due diligence, granular risk assessment of digital assets, and clear exit strategies based on predefined performance targets or market conditions within the crypto investment space.
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