A Skeptic’s Dive into Crypto Pt. 3 Allocation to Cryptocurrency
Now that we talked about cryptocurrencies and blockchain, what’s next? Well we hope you have viewed the other two articles, if not you can do that here and here. However, lets talk about portfolio allocation with crypto and why you should consider it. We are not advising you how to allocate, how much to allocate, or if you should allocate. This is for educational purposes only, please do your own research.
As with any investment, you invest in it because you believe the risk/reward is worth it. Major corporations like Tesla, Microstrategy, and PayPal are investing billions of dollars into it. There are also ETF’s that have invested in it, such as ARK Invest through the Grayscale Bitcoin Trust (GBTC). Now, just because someone else is doing it doesn’t mean you should. We have stayed out of Crypto all-together over the past several years and were in the camp that this is a fraud and will blow up.
However, now that major corporations, financial institutions, and the wider retail community are moving into it, it is harder for us to look at this and say it will never last. We believe that regulations will come to pass and this will be here for the foreseeable future. Thus, we need to get our act together and learn more about it.
Like every investment, you need to be able to do your own research and only invest what you can afford to lose. Should you allocate some of your portfolio to crypto? Possibly. This isn’t something we can tell you yes or no on, we are just going to show you our best practices and provide you with some resources should you choose to allocate to it.
How to allocate:
There are multiple platforms to purchase cryptocurrency and although buying through an app eliminates the ability to stay anonymous, it does make it incredibly convenient. I am sure the traditional brokers like Charles Schwab and JP Morgan will soon make it available through their accounts, there are plenty of cryptocurrency focused brokers. A few are listed below:
We are actually trading through ____ and the reason that we chose this was because ____. We emphasize that you do your own research before choosing a platform, they each have pros and cons, but if you decide to go with the same one that we are using, please signup through our affiliate link to help support us: ____
How much to allocate:
The prime factor to consider is your own risk tolerance and familiarity with cryptocurrencies. Bitcoin (BTC) alone has large swings, sometimes over 10% multiple times a day. Another thing to consider is this is still such a new and developing asset class that there is no way to be certain what the best allocation is. You also have to be comfortable losing everything, this is not regulated like traditional asset classes. There is the chance you lose everything.
However, after reviewing multiple sources it is somewhere between:
- 1–2% — conservatives
- 5–10% — enthusiasts
Quotes from individuals at cryptocurrency funds:
“I would say anywhere between 0% — 5% of the portfolio being in crypto is a good start.” — Joe DiPasquale, CEO of BitBull Capital
“A 3–5% allocation of crypto is appropriate” for a “young professional.” — David Martin, CIO of Blockforce Capital
“Given the volatility and uncertainty of crypto I would still make it a small part of my overall portfolio,” adding “anywhere around 5–10%.” — Marouane Garcon, MD at Amulet
The range is based upon one’s expertise in the space. If you are educated and understand the space, you may allocate more. At the end of the day, it is based upon what you are comfortable with.
Additional reading material: