Crypto investors know how important diversifying their investment is, as the industry is volatile. It’s, therefore, understandable that they come up with several strategies to reduce risks and protect their investments. We therefore see investment portfolios with popular cryptocurrencies and tokens. However, new tokens are also springing up every day, and they may just be what investors need to buffer their portfolios. But first things first; what are tokens, and how can new tokens help in diversifying crypto investments? Well, let’s read on to find out.
A Brief Overview of Crypto Tokens
Coins and tokens are both digital assets, but unlike the former, tokens don’t have their blockchains. Instead, they thrive on an existing blockchain, especially Ethereum, and do several things through smart contracts. Crypto tokens are like coupons or vouchers that can be bought, sold, or traded, but they aren’t a currency. They also prove asset ownership, give people the right to make governance decisions in a Decentralized Autonomous Organization (DAO), or acquire virtual collectables when gaming. Crypto users and investors alike may be familiar with the following; wrapped tokens, utility tokens, non-fungible tokens, security tokens, DeFi tokens and governance tokens.
A Sneak Peek into the Newest Crypto Tokens in the Industry
Crypto enthusiasts may already be familiar with the BTC Bull Token, which is directly tied to Bitcoin’s social and market value so its “value rises just as the crypto giant becomes more valuable. It’s often used in trading to amplify exposure to Bitcoin’s price movements without having direct ownership of Bitcoin as an asset. The token’s value is typically recalculated and adjusted periodically usually through daily rebalancing to maintain its leverage ratio. To get the token, investors need to have ETH or USDT, a Defi crypto wallet which can be any of Best Wallet, Trut Wallet or MetaMask.
In addition, other tokens also exist. For example, the ZRO token is paired with LayerZero, an omnichain interoperability protocol, permitting different networks to communicate, using oracles and smart contracts. Officially listed on Binance on 20th June 2024, this governance token allows the holders to vote on how the protocol should grow and develop. Its price is currently $3.515456 with a market cap of $ 386.70 million. Regarding its investment potential, ZRO token appears to be bearish short to medium-term. But it shows good prospects for being bullish over time, which is more favourable for long-term investors.
The ALT token is native to AltLayer, a decentralised and open protocol that promotes security and fast finality for rollups. Launched in January and enabled in March 2024, the ALT token’s current price is $0.090094 with a current market cap of $201.13 million. It gives its holders the power to make governance decisions and is also used as payment for services and transactions on the network. ALT token may have the potential to be a good investment, as Polychain Capital, Binance Labs, Sean Neville and other big names are interested in it.
SEI launched in August 2023 alongside the Sei blockchain and is used in governance, staking (security purposes), and trading fees on transactions on the platform. It holds a price of $0.289988 per SEI and a market cap of $920.71 million. Crypto investors may consider giving SEI a place in their portfolios because forecasts show that it may have a bullish trend soon, although it is currently bearish.
How Crypto Tokens Help in the Diversification of Crypto Investments
Crypto tokens can prove themselves a worthy form of investment diversification because they don’t have any business with traditional finance markets and don’t follow their rules. This makes them a unique asset class. That said, reducing risks may be better when people invest in them and traditional commodities. Moreover, anyone can get good returns if the supply and demand are beneficial. People can also change their crypto tokens into fiat currency or cryptocurrency at any time.
Because of tokenization, small-scale investors can also be illiquid asset holders; they only need to buy fractional ownership or shares of their desired shares. Plus, they can escape expensive admin costs because tokens operate with smart contracts which automate and streamline dividend distribution and other processes. People making cryptocurrency investments can also be rest assured that their token investments are safe on their respective blockchains; hackers will have a hard time changing data within the tokens.
However, it is important to note that the crypto market is extremely volatile, and an unfavourable market can mean sudden investment losses, which is not what anyone looks forward to. Due to the lack of regulations, crypto tokens can also be at risk of market manipulation and even financial crimes like fraud. Blockchain isn’t completely foolproof; a minute flaw in the smart contract’s code can bring its security crumbling down, and criminals can do whatever they want with it. These risks may deter some investors from crypto tokens.
To Conclude
New crypto tokens show promise to be great investment diversification options, although they are now building their momentum on the market. But be that as it may, they are still subject to the forces of demand and supply in tandem with market sentiments. Thus, they can go very far if the bullish trends dominate.