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Asset allocation – how much to invest in cryptocurrencies?

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Overall, there is a school of thought that says that investing in ICOs is not
investing at all – it is pure speculation and it is best to wait until after the ICO ie
after the coins have gone public. I certainly agree with the first part of that
statement – it is speculation to invest in a brand new startup that hasn’t even
built its product at the start of a new technology revolution. I also agree that
you would be better of looking at the ones that have gone public as they have
more chance of not being scams.
However, I don’t believe that is all we should be doing. I believe that in terms
of asset allocation a tiny amount of your portfolio should be invested on ICOs
because the returns could be gigantic. So what’s the ideal percentage? This
will, of course, depend on how old you are, how much risk you are willing to
take and how aggressive/conservative you want to be. However, for me, it is
the following:
In terms of asset allocation I am looking at putting 5% of my capital into ICOs.
The reason is that we have no idea:
1. Where this industry is heading.
2. Which ICOs are going to be successful.
Therefore investing in ICOs is EXTREMELY speculative.
However. I am still open to putting in a small amount every month, say £500+.
I am looking to spread my risk among a minimum of 20 different ICOs. I will put
more in if I have met the people and get a good feeling about it, or the white
paper makes a lot of sense and it is really solving a problem and has the team

to build the required solution. So if I bought into 20 of them and they all failed but one of them exploded, then I would risk £10,000 to make £50,000 or even more.
For example, I might invest:
0.5% of my capital into an ICO where I am not sure but want to be in because I don’t want to miss out.
1-1.5% of my capital into an ICO where I feel good about it.
2.5-5% of my capital into an ICO where I really have a very good feel about the problem, solution and the team.
The most I have invested into one ICO is 12.5% of my crypto capital. This was at the beginning of my journey and it was, in hindsight, too much in terms of asset allocation.
Let’s break this down:
25% = £2,500 into the top 2 Ethereum/Bitcoin.
40% = £4,000 into established coins e.g. top 20.
20% = £2,000 into up and coming coins ie outside the top 20 but coming up fast.
10% = £1,000 into new coins that have gone public onto an exchange.
5% = £500 into ICOs.
100% Total
This is just a guideline on what I am doing – you need to come up with your own system that works for you.
Remember that this 100% is the 100% of the total of my pot allocated to cryptocurrencies. Since cryptocurrencies are speculative, this ‘100%’ shouldn’t be more than 10% of your entire portfolio. So if you lost the entire 100% then you would have only lost 10% of your portfolio. Again, none of us know what the future is of cryptocurrencies (see next chapters). Buyer beware!

 

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