Spreading across a dozen tokens feels like risk management. Whether it is depends entirely on whether they do different things, and mostly they do not.
Why crypto correlates internally
Shared marginal buyer, shared liquidity conditions, shared sentiment. When risk appetite turns, it turns for the asset class rather than for individual tokens — and the smaller the coin, the more it behaves as a leveraged version of the majors rather than as its own asset.
So a basket of alts is frequently a high-beta bet on the majors, held in a form that is harder to exit.
Where it actually bites
Under cross margin, correlated positions draw on the same collateral simultaneously, in the same direction, at the same moment. The account experiences them as one position and liquidates as one.
And in stress, correlations rise. The diversification is measured in calm conditions and evaporates in the ones it was supposed to protect against — the same instability described in crypto-equity correlation, operating inside the asset class.
The exit problem multiplies it
A dozen positions in majors can be exited. The same number in thin tokens cannot be exited simultaneously without severe cost, because each one faces its own depth constraint, and a broad risk-off is exactly when everyone else is trying the same thing.
So a basket that looks diversified on entry can be a single, illiquid, correlated position on exit.
What genuine diversification would need
Exposures that respond to different drivers, which within crypto is rare. Realistically the useful levers are sizing and net exposure rather than name count — and counting positions as if each were an independent bet is the specific error worth naming.