Diversification is about picking the best of each market segment and buying a little of each. It is not about chasing penny stocks.
Portfolio performance is only gained with a range of stocks from each sector. The lower caps will always be more volatile and some will outperform the dominant stock.
We are only talking investment intent and actions here, not fundamental value. Therefore investment is about chasing penny stocks , and medium cap stocks, just as much as big-cap stocks.
The sort of investors we are talking about see cryptos as stocks, so plenty of money will flow into alts, and many will outperform BTC (considering price alone)
You are confusing two separate concepts.
Diversification is a risk
reduction technique. https://en.wikipedia.org/wiki/Diversification_(finance)
Portfolio optimization is about optimising a portfolio to achieve a specific objective (growth, income etc).
https://en.wikipedia.org/wiki/Portfolio_optimization.
When you are saying diversification, you really mean portfolio optimization in a way that
increases risk
If you want to optimize for high risk, high growth then chasing alts is the way to go. Dont make the mistake of thinking this is diversification, because its not.