Crypto, as part of your portfolio, explained

Crypto, as part of your portfolio, explained

With price swings and evolving protocols, it can be hard to figure out what percentage of your portfolio should be crypto. Here’s our explainer for how you might responsibly think about crypto as part of your portfolio, in simple terms.

TL;DR

  • Always do your research
  • Watch how the market moves and the tech evolves
  • Evaluate your own risk and conviction profile
  • Always keep an eye on assets’ long-term performance
  • Don’t over-leverage

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Do your own research

“Do your own research” (DYOR) is probably one of the most common sayings you’ll hear in crypto, but it’s a sound principle. How much crypto you should own largely depends on how knowledgeable you are about the space and how frequently you’re willing or able to follow its moves. We tweet market reports every week and recommend following financial news, but it’s important to understand how the tech and markets work before investing, whether you’re a beginner or a seasoned investor.

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Adjust your targets

Crypto is a recent asset class and remains in the price-discovery phase. The more time goes by, the more we know about it, and the more we can adjust our expectations. This goes together with the DYOR motto: The more you get to understand how the different tech projects work and how markets react to them, the more confident you might be in allocating progressively more of your portfolio to crypto. 

Many analysts advocate for a small allocation (between 1 and 5%) to start with because such a position has a significant upside potential while having a limited downside risk, but there’s a range. High-profile investor Ray Dalio even published a report recommending up to 20% in bitcoin. Worth repeating: Make sure you do your research whether you trust a finance analyst or not.

Figure out your risk and conviction profile

How much crypto you should own heavily depends on what you think crypto is worth. There are different ways to think about this:

  • Fundamentals: Different coins and tokens have different technological fundamentals and use cases, some of which you might believe in or be skeptical of. For instance, do you think scarcity will affect the long-term value of the asset? Educating yourself about these specifics is key.
  • Macro: Different assets react in different ways to the big trends of the wider economy, such as inflation, interest rates, and more. For example, investors who believe Bitcoin is a good hedge against inflation tend to have a larger BTC allocation.
  • Statistics: Many statistical models try to explain or predict the price of crypto assets. Using such models is usually reserved to experienced traders and must be handled with caution – the past performance of an asset is far from being a reliable indicator of its future performance.

Hong Fang, Okcoin’s CEO, has laid out the case for $100k Bitcoin from a fundamental and macro perspective. Read more

Keep an eye on the long view

Crypto moves at dizzying speeds and there’s always a technological breakthrough, regulatory move, macro economic change, or press cycle around the corner. Price swings and so called bull and bear markets can be even more drastic in crypto than elsewhere. However, looking at the long term performance of the biggest crypto assets shows its important to not get too caught up in short-term market movements.

Learn more about bull and bear markets

Be careful with leverage

Everyone will have their own strategy, but it’s common to see analysts recommend investing only what you’re willing to lose in crypto, and be careful of over-leveraging. Two reasons for that:

  1. Crypto is very volatile. If your allocation is too significant, the price swings can be difficult to handle.
  2. Crypto is 24/7. Contrary to traditional markets, crypto never takes a day off so if you’ve invested above what you can afford to lose you risk losing sleep constantly watching the markets.

One technique many investors use to beat volatility and the stress of 24/7 markets is to set up a recurring buy. This helps you buy a little at a time and have more control over your average price. Learn more about dollar cost averaging

Set up a recurring buy

This post is for educational purposes and is not investment advice. Please consult your own investment/tax professional regarding your specific circumstances. Okcoin is not engaged in the offer, sale, or trading of securities.