What Is the Barbell Strategy?
Feeling apprehensive about investing your money is natural in the chaotic cryptocurrency market.
With crypto firms declaring bankruptcies, people wonder whether it is worth investing in.
However, despite the market’s ups and downs, it doesn’t mean you should avoid investing altogether. You can follow a strategy to mitigate losses known as “the barbell strategy.”
This investment strategy, coined by Nassim Nicholas Taleb, an essayist, statistician, and options trader, involves allocating investments to high-risk and no-risk assets while ignoring middle-risk assets.
How Does the Barbell Strategy Work?
The barbell strategy can be beneficial in the current economic climate, with heightened uncertainty in financial markets.
Investing equally in the highest and lowest-risk areas increases the chances of obtaining profitable returns (DYOR – Do Your Own Research).
How to Use the Barbell Strategy in Crypto?
While the barbell strategy emphasizes an equal allocation of funds to extreme ends, investors can modify it to suit the unique nature of the cryptocurrency market.
When applying the barbell strategy to crypto investments, consider the following breakdown:
- Allocate 50% of your investment to blue-chip coins.
- Allocate 30% of your investment to growing coins.
- Allocate 20% of your investment to event-based trading.
This breakdown suggests putting half of your investments into large-cap cryptocurrencies with solid fundamentals, such as Bitcoin or Ethereum, providing stability to your portfolio through blue-chip coins.
The 30% allocation to growing coins allows you to explore medium-risk assets and diversify your portfolio. Research and invest in coins with growth potential.
The remaining 20% is set aside for event-based trading.
This portion can be used to invest in high-risk assets, particularly newer coins in the market.
However, investors must conduct thorough research and assess their risk appetite before implementing any strategy.
Remember, the crypto market is highly volatile, so only invest what you can afford to lose.