How Much Crypto Should Be in Your Investment Portfolio?
What’s Next for Crypto?
How much is impossible to say because no one knows what drives cryptocurrency prices, and the answer may not be coming soon. Investors have long struggled to peg expected returns for fiat currencies and commodities such as oil, grains and metals, which, like cryptocurrencies, don’t generate interest, earnings or dividends that can be separated from their price.
BlackRock Inc., the world’s biggest money manager, publishes expected returns for 24 different investments, including stocks, bonds, hedge funds and private equity. It’s probably not a coincidence that currencies and commodities are not among them.
With little history and even less insight about what moves cryptocurrencies, investors are left guessing what to expect — and how to blend cryptos with other investments in their portfolios.
Search Google for an answer about how much to allocate to cryptocurrencies and you’ll get a wide variety of results.
One “expert” recommends that investors allocate 2% to 5% of their net worth, while another in the same article cautions no more than 1%. In another article, a financial planner says investors can allocate as much as 10% of their risky investments to cryptocurrencies, and possibly more for younger investors.
There’s little harm in allocating a small percentage to cryptocurrencies if investors can stick with it. But hanging on may not be easy.
While some data suggests that Bitcoin investors have skillfully navigated its gut-wrenching volatility, there’s more evidence showing that the more volatile an investment, the more investors tend to buy high and sell low. And nothing is more volatile than cryptocurrencies, which is all the harder to manage when investors can’t see what lies ahead.
Investors may have more visibility around cryptocurrencies in the years ahead, and perhaps it will shed light on longstanding questions about fiat currencies and commodities. But for now, how much to invest in cryptocurrencies remains a question of faith more than science.
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Nir Kaissar is a Bloomberg Opinion columnist covering the markets. He is the founder of Unison Advisors, an asset management firm. He has worked as a lawyer at Sullivan & Cromwell and a consultant at Ernst & Young.
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