Altcoins vs. bitcoin: What to consider while building your crypto portfolio

“Ultimately, each investor has to really decide for themselves what feels right, but broadly speaking, someone who is more conservative would want to have a fairly small portion of their portfolio in crypto,” says Shafrir.

A 5% or 10% allocation could still provide sizable gains over the years, while limiting exposure to the occasional 80% drop along the way, he adds.

Someone with a moderate risk tolerance could probably “withstand somewhere towards 20% to 50% in crypto, depending on what other risky assets they may be invested in,” says Shafrir.

As for the high-risk takers, Shafrir says “anything north of 50% will be exciting on good days, but they had better be prepared to weather the bad ones, too.”

Does crypto belong in a balanced portfolio?

In a broader, more balanced portfolio, cryptocurrency could serve as a risky but potentially very rewarding investment. Experts prescribe inclusion of more stable, safer assets, including different types of cryptocurrencies. For example, “investors can leverage stablecoins, which are cryptocurrencies pegged to traditional assets like the U.S. dollar,” Shafrir suggests.

While stablecoins provide no appreciation directly, they can be loaned out on various DeFi (decentralized finance) platforms for a decent and largely safe passive return, thereby offering increased diversity and more profit-making opportunities. 

Crypto exposure also offers a potential hedge against inflation, and while all markets seemed to be correlated over the past year, that correlation could dissipate over time as “the asset class grows and continues to prove its robustness and acceptance by institutional investors,” Mosoff notes.

Moreover, cryptocurrencies are underpinned by a brand-new technology that many consider to be the next iteration of the web. And Mosoff points out: “People are really excited about the ability for value to move around the internet in a native way that does not rely on third parties, such as banks, to facilitate transactions.”