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.
I don't know if that's what the wikipedia article says and if it is then it's absolutely retarded.
Say your portfolio has an expected return of 5%.
Now you buy some risky assets to add to your portfolio.
If that addition to your portfolio fails to increase your expected return beyond 5% you've failed to optimize your portfolio.
If it's equal you now have a more volatile portfolio, if it drops below 5% you've lowered your profitability. In both cases you have not optimized anything. So anyone who calls those cases portfolio optimization probably has a degree in Economics.
If you've indeed optimized your portfolio then your expected return has gone above 5%. Your portfolio may now have become more volatile depending on your relative exposition to those "risky assets", but you have not increased the risk. Unless you are talking about marginal probabilities, which would be nonsense considering that we are talking about an aggregate, a portfolio.