As cryptocurrency gains legitimacy and mainstream acceptance, determining how and where to incorporate the new asset class into an overall financial portfolio is a key question for many investors. While a moderate allocation to cryptocurrencies may help improve total and risk-adjusted returns, investors must also be careful not to overexpose themselves or chase returns in an attempt to “buy low and hodl high.” Resource

A Guide to Effective Crypto Asset Allocation

To minimize risks, it’s often best to focus on the largest crypto assets with the most stable market caps. However, a more robust approach can include additional tokens based on their unique value propositions. For example, the oracle service Chainlink provides connectivity between blockchains and external data, making it an essential element of decentralized applications (dApps).

Ultimately, how much to allocate to crypto depends on one’s belief in the future of the new asset class and level of risk tolerance. Investors who choose to HODL believe in the long-term value of digital assets and are willing to ride out the volatility of market fluctuations. Others may prefer a more speculative position and choose to allocate a higher percentage of their net worth. Whatever strategy is chosen, regular rebalancing helps ensure that a crypto portfolio stays aligned with its initial investment goals and that it delivers on the promise of potentially stable and attractive returns. In fact, Grayscale Research has found that including a small allocation to cryptocurrencies—perhaps up to 6% of a traditional 60/40 portfolio—can significantly enhance the efficient frontier for risk-adjusted returns.