How Much Crypto Should I Have in My Investment Portfolio?

How Much Crypto Should I Have in My Investment Portfolio?

How much water to drink?

How much sleep to get?

Or, how much crypto to invest in?

There is no right answer to any of these questions! The answer depends on you.

Financial advisors are not always in favor of investing in cryptocurrencies. And we don’t blame them at all. Indeed, lack of regulation, untested market conditions, and volatility have led to a “don’t touch cryptocurrencies with a 10-foot pole” attitude. However, some ambitious investors withstood the test of indifference and then added cryptocurrencies to their portfolios, depending on market conditions and their risk appetite.

Which brings us to the short answer! The amount of cryptocurrencies you should have in your portfolio is the amount you do not mind losing. Once you are not afraid to lose, the victory will come naturally.

Understanding the Cryptocurrency Portfolio

The special situation of cryptocurrency portfolio allocation is solvable. It only requires research, investigative skills, and planning. In other words, RIP; not literally.

All kidding aside, the question “how much cryptocurrency should I have in my portfolio” leads to an important discussion that requires a good understanding of goals, investment experience, risk appetite, and other factors.

Portfolio criteria

According to one study, nearly 40% of cryptocurrency buyers have allocated almost 11% of their portfolio in these high-beta assets.

So, that’s 11 percent! End of story.

Not so; the claim of 11 percent of cryptocurrency portfolios is supported by a host of other data, including.

  • 12% of the respondents want to get crypto for retirement;
  • 22% of the surveyed individuals wanted to invest in crypto to diversify further.

    Principles for adding crypto to your portfolio

The above information suggests that cryptocurrency is not just about numbers. Here are some factors to consider to best allocate your investment portfolio. These factors determine the principles to follow when investing.

  • Nature of Investment
  • Experience
  • Risk Appetite
  • Need for Diversification
  • Use-cases you plan on Exploring
  • Market conditions at the entryThroughout the subsequent sections, expect us to explore every factor and the corresponding crypto investment action.

    Cryptocurrency in Your Overall Portfolio

    First, never trust a source that provides arbitrary numbers. It is important to consider the factors listed above before choosing cryptocurrencies as an asset class. That’s not all: contrary to what most advisors would have you believe, market volatility is one of the most important aspects that will help you answer the question of the moment, “how much cryptocurrency should I have in my portfolio.”

    In addition, here are some factors that will help you decide how much cryptocurrency to include in your portfolio.

    Nature of investment or timeframe

    Are you planning to invest for one or two years? Or do you want HODL, which is an easy 5- to 10-year investment. The answers to the above questions are more important than you might think.

    If you are a short-term investor, limiting your investments in cryptocurrencies to 1 percent is a good place to start. Cryptocurrencies are an unstable asset class, and short-term peaks and troughs are common. Therefore, if you are only interested in investing and recording profits when they are available, it makes sense to allocate 1% to 2% of your total portfolio to cryptocurrencies.

    As a HODLer, you can be bolder, as you have the opportunity to consider multiple bullish and bearish cycles. In the case of HODLing, the risk seems to be low (think of the BTC HODLers in 2015), which means you can reach 5 percent in your portfolio allocation to cryptocurrencies.

    If you are an institutional investor, 1% is definitely a strong point. Recall that in January Rio de Janeiro, a popular city in Brazil, invested 1% of its entire fund in cryptocurrencies.

    Translated with www.DeepL.com/Translator (free version)

    Experience

    Have you already invested in high-beta assets (volatile financial instruments) such as stocks and cryptocurrencies? If not, you should not put more than 1% of your portfolio into cryptocurrencies. If you are a new investor and have no experience with volatility, any value above 1% will keep you up at night.

    The advantage of 1% is that it will not have a significant impact on your portfolio, even if it dries up overnight due to unfavorable market conditions.

    Experienced investors, on the other hand, can go as high as 5 percent. They are better equipped to handle the volatility and even the risk of investing in cryptocurrencies.

    Risk appetite

    What is your way of investing? Are you interested in a quick gain or in something stable and low-risk?

    Before planning your cryptocurrency investments, you might consider answering these questions. If you prefer debt funds (bonds and government securities), it seems legitimate to allocate 1 percent of your portfolio to cryptocurrencies. Those with an average risk appetite might choose between 2% and 5%. A high risk appetite can lead to aggressiveness and should be limited to 10% of the portfolio when it comes to cryptocurrency investments.

    Different combinations are possible: higher-risk investments can yield nearly 5 percent in the short term, while HODLers with a higher risk appetite may consider moving to 10 percent, being able to afford a longer period of inactivity.

    Need for diversification

    Portfolio participants need to consider your immediate, short-term, medium-term, long-term and retirement needs. If you want to build a balanced fund-which includes debt funds, equities, ETFs, insurance plans, ELSS, ULIP products, and so on-there must be a place for cryptocurrencies.

    A highly diversified portfolio, with a perfect balance between low and high beta instruments, should allocate 2 percent of the total value to cryptocurrencies. In this way, there will be safer assets to balance risk at all times.

    Use-cases you plan on exploring.

    As a BUIDLer who intends to enter the crypto space to build applications, assets and products, a 1 percent investment in crypto seems like a good place to start. If you are not looking for substantial profits, it makes sense to allocate 1% of your total portfolio to a cryptocurrency or cryptographic asset of your choice for a specific purpose.

    Market conditions at the entry

    Most articles, even those by influencers, do not take this measure into account. Investing in cryptocurrencies during a bullish market sounds good, but it should not cost 1 percent of the value of your portfolio. Buying at high prices shows optimism, but in the long run, safety is the most important thing.

    However, if you are good at reading charts and plan to enter the market at the bottom down, a figure between 2% and 5% seems normal.

    The above factors take into account each investment pattern and need. However, they do not reflect the full picture. There is more!

    Why is Crypto Portfolio Allocation Important?

    Yes, you can start with 1 percent. 0.5% makes sense, as long as no risk is taken. Ultimately, the choice falls on the desired portfolio allocation, depending on investment return objectives.

    Ric Edelman, founder of the Financial Professional Digital Assets Council, believes that 1 percent of a portfolio is an appropriate benchmark for cryptocurrency investments.

    In contrast, a Yale University study published in 2019 recommends that each portfolio contain at least 6 percent cryptocurrencies (4 percent to 6 percent), preferably bitcoin.

    Different people. Different mindsets. Different percentages! As incongruous as it may seem, there is logic behind it, and the metrics tracked confirm this.

  • Varied financial considerations
  • The sample size of the survey (high-risk, medium-risk, or low-risk)
  • Personal bias
  • Market conditions at the time of the survey
  • Nature of crypto (Bitcoin is considered the most reliable due to market dominance)

It is therefore normal for different analysts to recommend allocating different percentages of one’s portfolio in cryptocurrencies. However, if you want to go a step further and make better decisions, here are the things to follow.

  1. Do-Your-Own-Research (DYOR)
  2. Do not fall into FOMO
  3. Look beyond the FUD (Fear-Uncertainty-Doubt)
  4. Try and learn the charts better
  5. Understand the crypto project fundamentals better
  6. Follow Dollar-Cost-Averaging if you want to invest periodically

Once you follow the strategies mentioned above, you are expected to make better calls regarding ascertaining the amount of crypto inside your portfolio.

Understand Portfolio Performance

By now you should have decided how much cryptocurrency you want to have in your portfolio. But the money does not end there. Before you close and change the allocation of cryptocurrencies in your portfolio, you need to continue to monitor portfolio performance, market volatility, technical indicators, and financial conditions and commitments.

For example, if you plan to increase your specific bitcoin portfolio, monitor market sentiment, technical indicators, and other immediate factors. All this assumes that you have considered the fundamentals of bitcoin when you first invested.

Alternatively, if you are an Ethereum fanatic and are hoping for a merger-driven bullish move, it might make sense to allocate another percentage before deciding on a seasonal move. However, the allocation should be proportional to the portfolio’s performance period.

Conclusion

In short, although 1% seems to be the safest bet according to most experts and financial advisors, this does not take into account the human element. And this includes possible risk sensitivity, holding period, etc.

With each of these aspects in mind, you should try to keep your cryptocurrency portfolio dynamic, playing between 1 percent and 5 percent of your investments depending on changing market conditions, existing risks, volatility, promised returns from other funds, etc. With cryptocurrencies, or any other investment, one should always have the ability to change the value of one’s money when necessary. However, 1%-5% seems to be the ideal range.

Once you have made your decision, explore Coin Set and choose the right cryptocurrencies for your portfolio.

FAQs

1. How much crypto does the average person own?

There is no need to generalize, but the average person typically has between 0.5 percent and 1 percent of cryptocurrencies in their wallet. According to many discussions on social media platforms, an average Bitcoin holder has 0.00175 BTC.

2. What is a good amount of crypto?

3% to 5% of the entire portfolio allocated to crypto sounds like a good amount, but again, it varies from person to person.

3. How to store and protect your cryptocurrencies?

Now that you have earmarked a portion of your wallet for encryption, it makes sense to purchase a reliable hardware/cool wallet or secure online wallet to store and protect them.

4. What’s the biggest mistake people make when investing in crypto?

The biggest mistake in cryptocurrency investing is greed, followed by panic. Never ride the wave blindly and do not get discouraged at the sight of a small red in your portfolio. Also, never invest too much (say more than 10 percent) in cryptocurrencies if you have immediate financial obligations.

 

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