Alex Kruger – What percentage of a portfolio is it reasonable to allocate for cryptocurrency?


Keeping half of your funds in cryptocurrencies with a diversification of 70 junk coins, and the other half in cash, is the worst advice I’ve ever heard. I hope that I just misunderstood, and no one really recommends this.

Distribution of 50% of its own portfolio in cryptocurrencies will be akin to gambling. Mid-level investors should not define too much of their own funds in extremely high-risk asset classes, such as cryptocurrency, which can regularly lose 85-99% of their own value (given the third collapse in 7 years, I think this is regular) if they have there is no insider information and a high probability of a positive outcome in their favor. Even in this case, they will be at high risk, since even anything can happen to insiders. Most of the crypto investors lost money, and not earned, so the chances of success in this area are not great.

Imagine a 50-year-old man who amassed $ 300,000 while working hard. He, or she, invests 50% in cryptocurrencies, which lose 90% after one year, thus generally leaving only $ 180,000. 12 years of hard work is wasted (slightly less, since we did not take into account the capitalization of interest). And life passes.

Capital preservation should come first. All cryptocurrencies can completely lose their value, this is recognized even by the most experienced market participants. The probability of 0 is greater than 0. Cryptocurrencies are a technological innovation, and technologies sometimes become obsolete. It is possible that prices will not update their high values ​​for decades.

To enter into high-risk assets makes sense with leverage, and not half of all own funds. It all depends on the risk receptivity of a particular investor. If one person is 22 years old, he is lonely and owns $ 20,000, investing half in cryptocurrency will be more worthwhile. Risk tolerance varies with age and marital status.

For those who are more focused on high-risk investments, it is best to diversify their own funds into various classes of such assets, in other words, do not put all the eggs in one basket. Could you sleep peacefully with your family, savings of $ 300,000, without your own living space, keeping 50% in cryptocurrencies and seeing how your fortune loses in a day – $ 15,000 (probably more than your salary)?

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Vladyslav Skakun
thecryptodiffer@gmail.com

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