How Much Should You Invest In Bitcoin and other cryptocurencies?
Is it the right time? Should I go all in or set a percentage ratio? I’m I aware of my risk-profile? Should I go into ICO’s too?
Cryptocurrency investments should be classified has extremely risky, to help you clarify your thoughts let’s listen to what 5 known cryptocurrency enthusiasts have to say.
Most well-known from his time at Facebook, Chamath Palihapitiya has repeatedly recommended (e.g., here and here) that everyone should put about 1% of their investment capital into bitcoin. The crux of his argument is that bitcoin is uncorrelated with traditional assets classes (e.g., stocks), and will, therefore, serve as a hedge against the “autocratic regimes and banking infrastructure that we know is corrosive”.
Tom Lee is the co-founder of Fundstrat and is endlessly bullish about bitcoin. In this presentation at the Upfront Summit, Tom Lee highlights that top cryptocurrencies have an “uncorrelated alpha” which is the “holy grail of portfolio allocation”. Translated, this means that cryptocurrencies are not correlated with other asset classes (e.g., stocks)
At this point in the presentation (on this slide), Tom notes that putting just 2% of your investment portfolio into bitcoin between 2014 – 2017 would have increased your returns by 2% (from 6% to 8%). Interestingly, a 10% allocation split between bitcoin and the top 10 cryptocurrencies would have yielded a 19% return (with a higher Sharpe ratio) over the same period.
Another well-known bitcoin bull, Michael Novogratz (former partner at Goldman Sachs) thinks that “it’s almost essential for every investor to have at least 1% or 2% of their portfolio” in cryptocurrencies. In 2017, Michael reported that he had about 10% of his net worth in cryptocurrencies.
If you have some time to burn, you might enjoy sitting through one of his 2017 interviews here.
Erik Finman is a 19-year-old cryptocurrency millionaire who reckons that young people should invest 10% of their income into bitcoin and other top cryptocurrencies. If you assume that half your income is lost to rent/mortgage and bills, then this actually equates to 20% of your disposable income.
Not a fan of this piece, but it offers some contrast to Chamath Palihapitiya, Tom Lee, and Michael Novogratz.
Louis Thomas is a millennial cryptocurrency YouTuber who invested his life savings into Bitcoin and Ethereum in 2017. Quite a bold move. He notes that it wasn’t a huge amount (given he’d just finished university at the time). He also comments that he’d still go all in even if he was investing into cryptocurrency for the first time in 2018. This decision turned out well for him, but he doesn’t meaningfully weigh in on whether other millennials (who presumably have a low net worth) should follow his example.