The Barbell Strategy

A method in which investors put their money in two extremes of high-risk and no-risk assets while ignoring the middle-risk assets.


What Is the Barbell Strategy?

In the chaotic cryptocurrency market, it is most likely to be afraid to invest your money. However, with crypto firms declaring bankruptcies, people are pondering whether it is worth investing in. 

But like every other market, there are highs and lows in this one too. That, in no way, means that you should stop investing in it. While your fear of loss is justified, there is a strategy that you could follow to avoid losses. 

This strategy is known as “the barbell strategy.” In this method, the investors put their money in two extremes of high-risk and no-risk assets while ignoring the middle-risk assets. 

This investment strategy was founded by an essayist, statistician, and options trader, Nassim Nicholas Taleb. While many of his fellows struggled in financial markets, he used this strategy to survive the 2007-08 economic crisis. He explained the strategy in the following words:

 “If you recognize your vulnerability to prediction mistakes and acknowledge that most risk measures are inaccurate, your goal should be to be as hyper-conservative and hyper-aggressive as possible, rather than modestly aggressive or conservative.”

How Does the Barbell Strategy Work?

In the current economic situation, when uncertainty is at its peak in all financial markets, this strategy can be quite helpful to many. The barbell strategy lets investors invest equally in the highest and lowest-risk areas. When one has invested in both extremes, there is a high chance that they will get something profitable out of it (DYOR). 

How to Use the Barbell Strategy in Crypto?

While the barbell strategy is about putting an equal portion of money in the two extremes, investors may modify this strategy to fit the differing nature of the crypto market. 

When you are using the barbell strategy to invest in crypto, you may use the following divisions:

  • 50% investment in blue-chip coins.

  • 30% investment in growing coins.

  • 20% investment in events-based trading

So, this breakdown means that you should always put half of your investments into large-cap cryptocurrencies with strong fundamentals, like Bitcoin or Ethereum. This will put your portfolio in the safe hands of the blue-chip coins. 

After that, the 30% investment in the growing coins can help you play with medium-risk assets. You can get as diverse as you would like to. This share is all about you researching the coins and investing in the ones that have room to grow. 

The final 20% should be set aside for event-based trading. Investors may use this portion of their portfolio to buy high-risk assets, mostly the ones that are new in the market. However, investors must do their own research and analyze their risk appetite before following any strategy. The crypto market is highly volatile, therefore, one should only invest what they can afford to lose.