An optimal crypto portfolio should look like this…
Crypto did great in 2024 (and I think prices will keep rising in 2025).
Bitcoin price surged 116% last year:
It was the best-performing major asset class by a landslide. For comparison, the S&P 500, which also had a great 2024, gained “just” 23%.
The problem is, many investors missed last year’s move in crypto altogether.
They avoided investing in crypto because they consider it too risky.
It’s true, crypto is riskier than many other investments.
Case in point: BTC price reached $110,000 in January. Then it crashed 30% a month later.
Most investors can’t handle such volatility. Which is a shame. Because they also miss out on profits when crypto is going up.
That’s why I recommend you do this with your crypto portfolio:
Don’t invest more than 5% of your investable assets into crypto.And above all else: ***DON’T INVEST ANY MONEY INTO CRYPTO YOU CAN’T AFFORD TO LOSE.***
Don’t get me wrong. I’m bullish on crypto in 2025.
But you must respect crypto’s volatile nature.
Only invest money you’re willing to speculate with. Don’t invest your mortgage money or your kids’ college money. There are many cryptos with exciting stories and profit potential that may compel you to “bet the farm.” PLEASE DON’T DO THIS.
Here’s a quick test to determine if you’re investing too much in crypto…Before you buy, ask yourself: What if the crypto I bought loses 50% of its value by next week? If this would stress you out, you’re investing too much.
In volatile assets like crypto, you need “staying power” to remain invested while prices are swinging around. It’s the only way to lock-in big gains. Otherwise, your emotions might force you to sell at a wrong time.
The best way to have staying power is to keep your position sizes small.
I also suggest adopting the lopside barbell strategy.The barbell strategy is a portfolio construction tool that strikes the right balance between risk and reward. It does so by investing in two distinct types of assets, on both extremes. On one end, you have “safer” assets.
On the other, you have “higher upside” assets. Just like a barbell, you’ll load it on either end, with nothing in the middle. This will allow you to potentially earn higher returns… while the “safe” portion cushions potential losses. (I put “safer” in quotes because crypto is an early-stage technology, and no crypto has a comparable level of safety to financial assets like government bonds, cash, and certain groups of stocks.)
Here’s how it works: You would put the majority (75% to 90%) of your crypto investments in the safer portion. The other 10% to 25% would be allocated to higher-upside assets. So, your crypto portfolio would resemble a lopsided barbell:
In my RiskHedge Venture crypto advisory, I recommend investing 75% of your crypto allocation to “safer” and bigger cryptos, like Bitcoin, Ethereum, and Solana. Then, I recommend putting the remaining 25% into higher-upside tokens.
Please note: Crypto is just one asset in an overall portfolio. I recommend putting around 2% of your total assets into crypto — and definitely no more than 5%.
How do you find good quality cryptos?Dozens of real crypto businesses produce millions of dollars in cash flows each day. That means we can determine their value like we would a stock.
You can compare how much revenue Ethereum rakes in each year to its market cap to get an idea of how “expensive” or “cheap” it is — just like a stock. I evaluate crypto opportunities just like Warren Buffett assesses a stock. I analyze the underlying business.
It’s important to understand that almost no one else views cryptos as businesses, yet. The vast majority of crypto investors have a trading mentality. They aim to find a hot crypto or a meme coin… ride it higher… then jump quickly to the next hot trade. This can be a profitable strategy. But it’s rarely as profitable as identifying a great crypto business very early on and holding it as it flourishes.
Here are some basic questions my team and I first ask when we’re evaluating a crypto:- Who are the key people involved?
- What does the company actually do?
- What important problem is it solving?
- How much money is it making?
- How fast is the business growing?
- What advantage does it have over competitors?
- What are the “tokenomics?” (Think of each crypto project as its own little economy. A crypto’s “token economics” defines how money (tokens) is distributed and earned in its economy.)
Look, the vast majority of cryptos are total garbage.
That’s why a big part of our crypto research is a process of elimination.
I’m only focused on finding the best of the best. Cryptos with real products, real revenues, and a chance to change the world. You can find 3 such cryptos here.
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— Stephen McBride, Chief Analyst at RiskHedge
An optimal crypto portfolio should look like this… was originally published in Coinmonks on Medium, where people are continuing the conversation by highlighting and responding to this story.