There are a lot of people wanting to invest in cryptocurrencies, but because of the uncertainty and market volatility, they are reluctant to do so, because they don’t know what is the right allocation for this asset class. This is one of the most-asked questions in the online world, and because of that, we would like to talk about three factors you need to consider when making a decision.
# Think about your risk profile
Because there is no right asset allocation ratio for crypto, one of the first aspects you need to think about is your risk profile. Are you comfortable seeing wild market valuations and you are not emotionally hijacked by volatility? If that’s the case, you are among the lucky ones that have the mental ability to deal with the risk and thus have a larger cryptocurrency exposure.
In case you already have a portfolio of assets (stocks, gold, commodities, etc.), crypto can get be 10% – 20% of it. Keep in mind that precautions had to be taken, while also you need to consider the positive correlation between crypto and traditional assets. In case you want diversification, integrating crypto can increase your downside when markets are headed south.
# How do you view cryptocurrencies?
What is the reason for investing in crypto? Do you think this is a type of asset like any other else or because someday in the future, cryptocurrencies will replace traditional fiat currencies and thus will benefit from an increase in valuation? Based on the answer, you could consider how much to invest. Either way, it would be appropriate to not be over-leveraged on crypto, because bear markets will be painful to bear.
# How much capital you have available for investing?
Your finances will play a key role in the final decision, as well, given the high level of volatility. If you want to avoid some of the basic mistakes, believing that crypto will make you rich is not the right approach. In case you don’t have a lot of money to invest, don’t try to force things. Start small until you achieve consistent results and only after that take gradual steps to improve profitability.
This is a long run and patience will play a critical role. Regardless of the frustration associated with the lack of financial abundance, you should remain objective when investing in crypto and keep realistic expectations. Waiting for a big hit is not the right approach, and instead, you should take each opportunity at a time and try to squeeze as much as it’s possible out of it.