What's the right crypto allocation for investors? - The Average Joe

    What’s the right crypto allocation for investors?

    Victor Lei β€” Head of Research

    December 8, 2021

    bitcoin

    December 8, 2021

    Last weekend, crypto fell hard with Bitcoin falling as much as 25% within 24 hours β€” fully displaying the volatile nature of cryptocurrencies.

    Just how volatile? According to Ben Carlson, Bitcoin has seen corrections of 33%, 39%, 41%, 30%, 84%, and 62% since 2017 β€” along with several single-day 20% crashes. But volatility is the price to pay for crypto’s high returns over the past decade.

    So, how much can The Average Joe allocate to crypto and still be able to sleep at night? As always, the answer is β€” it depends.

    Crypto allocation: As with any investment β€” be prepared for the chance of 100% loss β€” and when it comes to crypto, that risk gets even higher. Here’s what advisors think:

    • JPMorgan says allocating up to 1% of portfolio as a way to diversify portfolios.
    • NextAdvisor asked several planners the question β€” with the consensus being 1-5% of their portfolio.

    The low end is recommended for those who are curious about crypto with less knowledge β€” with the higher end for those with more experience.

    The higher the allocation, the more your portfolio will be impacted by crypto’s high volatility. If you ask crypto enthusiasts, their answers will likely be significantly higher.

    • Mild allocation: Investor and entrepreneur, Kevin O’Leary has nearly 10% of his portfolio in crypto-related assets β€” saying diversification is key.
    • Spicy allocation: On the extreme end we have Bitcoin enthusiast, Anthony Pompliano β€” with nearly 90% of his portfolio in Bitcoin.

    But in both O’Leary and Pomp’s case, they’d be fine even if their 10-90% allocation goes to zero β€” as the rest of their holdings are still enough to last several lifetimes. A luxury many of us can’t afford.

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