Defensive investing is an investment strategy focused on preserving capital and minimizing losses during periods of market downturn or economic instability, prioritizing stability over aggressive growth. Within crypto investing, this approach seeks to mitigate the inherent volatility of digital assets by allocating capital to less correlated or more stable segments of the market.
Mechanism
The mechanism involves selecting assets that exhibit lower price sensitivity to market cycles, often possessing intrinsic utility or stable cash flow characteristics, or those with inverse correlations. In traditional finance, this means consumer staples or utilities. In crypto, it may involve stablecoins, certain yield-bearing DeFi protocols with audited smart contracts, or assets with established network effects and proven security, aiming to reduce exposure to highly speculative tokens.
Methodology
This methodology applies a risk-averse allocation strategy, emphasizing portfolio diversification and asset quality. It often entails rebalancing portfolios towards assets with lower beta coefficients or higher market capitalization within the digital asset class. The approach relies on thorough due diligence to identify resilient projects and protocols, aiming to weather market corrections while preserving a base level of capital, contrasting with purely growth-oriented crypto strategies.
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