How Much Crypto Should Be in Your Portfolio

Crypto investments were not always received with open arms by financial advisors, and it’s not hard to see why. The absence of regulatory frameworks, unproven market behaviors, and extreme volatility have all contributed to a hands-off approach towards cryptocurrencies. 

However, enterprising investors haven’t let this deter them, continuing to add crypto to their portfolios in line with market conditions and their risk tolerances. This leads us to a short response. The quantity of crypto you should hold in your investment portfolio is an amount you are comfortable risking. The path to gains becomes more intuitive once the fear of loss is removed.

How Much Crypto Should You Own?

Deciding on the amount to invest in cryptocurrency can be more critical than choosing the specific coins to buy. The sum you put into crypto affects your additional financial assets and sets the investment strategies you can implement.

A basic guideline for determining how much to invest in cryptocurrency is to consider your net worth. For example, an individual with a high net worth can afford to take greater risks than a college student without any savings.

According to conventional investment wisdom from financial expert Douglas Feldman, one should not invest more than 1% to 5% of their total net worth in cryptocurrency. Nonetheless, some crypto experts, such as Erik Finman, propose investing up to 10% of your crypto income could be a strategic move.

Overseeing Your Crypto Portfolio

The upkeep of your cryptocurrency portfolio demands a long-term vision that stretches across years or possibly even decades. Considering the inherent fluctuations of this budding asset class, it’s essential to prioritize potential profits over a prolonged period rather than chasing quick, short-term gains over weeks or months.

When you buy BTC, your investments are typically lucrative, particularly those retained for more than four years. These investments should be perceived as a dedication to an emerging technology instead of a swift route to accumulate wealth.

Regularly scrutinizing your portfolio or trying to perfectly time the market often results in unnecessary stress and ill-advised decisions. Instead, carrying out periodic assessments and modifications of your assets is suggested, based on your evolving understanding of the market. This approach is akin to the management of a stock portfolio. 

What’s a Good Cryptocurrency Portfolio?

A successful cryptocurrency portfolio should reflect the core tenets of your overall investment approach. It should encompass a variety of investments and be in line with your risk tolerance. Invest in cryptocurrencies that you have thoroughly researched and feel secure about. Reading these digital assets’ whitepapers is essential to fully comprehend their operation and objectives.

A well-planned crypto portfolio lets you navigate bearish and bullish market phases without causing excessive worry or disturbing your peace. Be cautious of overexposure or speculative wagers on altcoins, which could result in “paper hands”, a term used to describe investors who sell off at the first sign of a market slump out of panic.

Pros and Cons of a Diversified Cryptocurrency Portfolio

The primary advantage of a balanced crypto portfolio is its diminished risk factor. A diverse portfolio ensures that you’re not solely dependent on the triumph or downfall of a single cryptocurrency.

In addition, diversification increases your probability of investing in the most prosperous cryptocurrencies. It’s frequently observed that certain cryptocurrencies outshine others in the market for certain periods. The more varied your portfolio, the more likely you’ll have stakes in these exceptional performers and partake in their profits.

However, despite the advantages, maintaining a well-adjusted portfolio is quite time-intensive, which is its major disadvantage. Selecting suitable cryptocurrencies, planning asset distribution, and re-adjusting your portfolio are all time-consuming tasks. A diversified crypto portfolio doesn’t ensure success due to the market’s extreme volatility.

Endnote

Establishing the right amount to pour into crypto is vital to your investment scheme. By considering factors such as your capacity for risk and liquidity, you can design an investment portfolio that caters to your specific needs. When the proper sum is invested in crypto, it opens up the possibility for notable gains without endangering your entire savings.