Unsystematic Risk, also known as specific risk or idiosyncratic risk, refers to the inherent uncertainty associated with a particular asset or a specific company, distinct from broader market movements. This risk component can be reduced or eliminated through portfolio diversification.
Mechanism
In crypto, unsystematic risk originates from factors unique to an individual digital asset or blockchain project, such as smart contract vulnerabilities, project-specific regulatory actions, team management issues, or technological failures specific to a protocol. These events impact the value of a single asset without necessarily affecting the wider crypto market.
Methodology
The strategic management of unsystematic risk in crypto investing involves constructing a diversified portfolio that includes a variety of digital assets across different sectors, use cases, and blockchain ecosystems. By spreading investments across multiple uncorrelated or weakly correlated assets, the impact of a negative event affecting any single holding is mitigated, thereby reducing overall portfolio volatility and enhancing long-term stability.
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