How to think about allocation
- Author
- CRYPTO PORT Editorial
- Published
- Updated
- Reading time
- 7 min
In short
Allocation means deciding in advance what proportion sits where. The right allocation depends on your income, outgoings, time horizon and tolerance for loss, so it cannot be generalised. This page recommends no specific allocation or asset, and no allocation prevents losses.
Key points
- Allocation is not a correct ratio; it is worked backwards from the drawdown you can live with
- Crypto assets tend to move together even when you hold several
- Allocations drift over time — decide the review interval in advance
- How holdings are split across custody (exchange vs self-custody) matters as much as which assets
Definition
The design decision of what proportion of your holdings sits in which asset type, which asset, and which custody arrangement.
Most people start from 'which asset will go up', but the order should be reversed. Decide first how much of your total wealth could be lost without damaging your life or your judgement. That figure sets the ceiling for what goes into crypto. Exceeding it tends to produce the outcome where you cannot bear a drawdown and sell at the bottom.
Next, how to divide within crypto. Be aware that there is little here resembling the relationship between shares and bonds. Hold several assets and they mostly fall together when the market falls. Diversification dilutes problems specific to one asset; it does not offset a market-wide decline. 'More holdings means safer' is not an accurate reading.
Custody allocation is the part most often skipped. Everything on one exchange means everything is frozen if that operator halts. Everything in self-custody means a lost key takes it all. Keeping what you actively trade on an exchange and long-term holdings in self-custody stops either failure from being total. It deserves the same weight as the choice of assets.
Allocations drift if left alone: a rising asset quietly grows into a larger share, and you end up carrying more risk than you chose. Deciding a review interval in advance avoids reacting ad hoc to price moves. Bear in mind, though, that rebalancing trades realise gains and losses and carry tax consequences. What allocation suits you is your own decision; this site recommends no specific ratio or asset, and no allocation prevents losses.
Watch out for
- · This is not investment advice and recommends no specific ratio or asset
- · No allocation prevents losses
- · Rebalancing trades realise gains and losses — confirm the tax treatment with a professional
Frequently asked questions
Does holding stablecoins make an allocation safer?
Price movement is smaller, but issuer and backing risk, plus custody and regulatory risk, remain. Low volatility is not the same as safe.