This is a difficult question as it very much comes down to multiple factors such as your age, risk tolerance, crypto knowledge and current income stream. If you do a search on Google you’ll get a variety of results. One “expert” recommends investors to allocate 1% while another might say 5% or even more. A 2019 Yale study found that 4% to 6% is an appropriate amount of a portfolio to allocate to crypto but for younger people this might be too low considering our current economic environment.
Start by looking at your current portfolio and ask yourself if you invest 15% of your wealth, would you be comfortable losing, say, 50% of that in exchange for potentially doubling or tripling that amount. If it makes you uncomfortable, reduce that amount to 10% and ask yourself the same question and keep going until you find a suitable amount. Ultimately, make sure that you don’t put in more than you can afford to lose and you don’t want to be in a situation where you’re losing sleep.
Why should you care?
FOMO or the fear of missing out is often used for cryptos as we often hear stories about people becoming millionaires by making a lucky investment in a coin that suddenly went up by 10x or even 100x. This makes many of us more risk takers when we can’t afford taking on the additional risk. It’s critical that you create guidelines for how much of your wealth to allocate so you don’t overexpose yourself.