Portfolio theory 101: in deciding whether to add an asset to your portfolio and in what size, you only care about two things: the expected value (EV) of the asset relative to your portfolio, and the correlation of that asset to the rest of your portfolio /1

2/ risk of an asset can most simply be divided into two types: A. systematic risk - the risk of that asset that is tied to the general market. B. Idiosyncratic risk - everything else. In theory - you don't get paid to take idiosyncratic risk since it can be diversified away.

3/ for example, a biotech stock waiting on FDA trials might be extremely risky, maybe 50% to go to zero, but the market probably won't provide extra return for taking that risk, since you can assemble a basket of "coin flip" stocks and diversify that idiosycnratic risk away.

4/ it can sometimes make sense to add an asset that you expect to *lose* money, if it is an excellent hedge for your portfolio. I.e. I think that USD is negative EV, but I hold some because it has a negative correlation to the rest of my portfolio (mostly BTC and gold).

5/ when thinking about EV and correlation, timeframe is important. If you're a high-frequency daytrader, you care about intraday correlations. If you're only looking at your trading account once a quarter, you care about quarterly correlations.

6/ "diversification is the only free lunch" is a truism in investing. And it really is true! However bullish you are on a single asset, it arguably always makes sense to have no more than 50% of your portfolio in it (and that would be very extreme). Why? Because of volatility

7/ Even if you're right and your favorite asset will outperform all others, you're still likely to get a better return with diversification. Even high performing assets (like, say, BTC from 2013-2017), experience major volatility.

8/ Having a diversified portfolio lets you rebalance on major dips to buy more of the asset at a lower price. It's kind of like dollar cost averaging, but instead of dollars, you might be converting equities or other commodities into your favorite asset.

9/ within cryptocurrency, there's fairly little diversification benefit, because when BTC tanks, almost everything falls with it. But there's still some diversification benefit, particularly amongst altcoins.