How Much Should You Invest In Crypto?

crypto investment guide

Just a few years ago, cryptocurrency seemed like a fringe investment. But with more investors (including institutions like BlackRock and Harvard) joining the fray, it begs the question: should you be paying more attention to cryptocurrency as an investment, and if so, how much should you invest in them? Here’s what you need to know.

Is cryptocurrency an investment?

First off, let’s get something out of the way: is cryptocurrency a legitimate form of investment? An investment is simply an asset that you purchase, with the intention to generate income or increase in value over time.

While this sounds applicable to cryptocurrency, experts are divided about whether they make good investments. Here are some common arguments for and against cryptocurrency as investments.

What the pro-crypto investment camp say:

  • Diversification. To diversify is to spread your money among different investments, so that if one investment loses, your entire portfolio won’t be badly affected. Cryptocurrency can help you diversify your portfolio, as its value has low correlation to the global stock market. In other words, if the global stock market tanks, your cryptocurrency holdings may not be affected.
  • DeFi could become more popular. Decentralised finance, or DeFi, refers to the shift from centralised finance (i.e. when money is controlled by a central authority, like the government) to a blockchain-based system where control is distributed among many people. Without intermediaries like banks, DeFi transactions could theoretically be quicker, cheaper and more accessible than traditional finance. DeFi applications – many of which run on the Ethereum blockchain – have surged in popularity over the past year, and may see increased adoption.
  • Alternative to fiat currency. For some investors, the appeal of cryptocurrency is that they’re outside the control of governments and banks. This makes them a “hedge against bad governance” – that is, alternative currency you can turn to in extreme situations of political instability and devaluation of your local currency.

Reasons from critics against crypto investments:

  • It’s really speculative. According to S&P Global Ratings, cryptocurrencies are still “mostly about speculation”. Their prices are highly volatile, and you could lose a big chunk of your crypto portfolio because of an announcement in regulatory change, or following a tweet from a particular billionaire.
  • Market manipulation risk. The ownership of Bitcoin is highly concentrated. Around 13% of Bitcoin is held by over 100 individuals, while 40% is held by under 2,500 accounts. This makes it highly susceptible to market manipulation, as single trades by such users can cause drastic price changes.
  • Security issues. Most cryptocurrencies are based on blockchain technology. While blockchains themselves are considered secure, the cryptocurrency exchange or software you use to store cryptocurrency may not be. Over the past decade, almost US$8 billion have been stolen in security breaches and fraud involving cryptocurrencies.

Potential for large gains (and losses)

Part of building your investment portfolio (the mix of investments that you own) involves balancing risk and reward. Generally, riskier investments like stocks tend to deliver better returns over the long run. An investor who can tolerate more risk might allocate a bigger proportion of their portfolio to high-risk investments.

So when including cryptocurrency in your portfolio, it’s worth considering the possible risks and returns.

It’s hard to deny that Bitcoin has been the best-performing asset over the last decade.

If you had invested US$1,000 in Bitcoin in July 2011, it would be worth US$2,785,738 in 2021. In comparison, a US$1,000 investment in the S&P 500, an index that tracks the 500 largest public-listed companies in the US, would have grown to US$4,060.

But cryptocurrencies have a short record of performance compared to conventional investments like stocks. Bitcoin, the world’s first decentralised cryptocurrency, was only created in 2009. We don’t know yet if its explosive growth will continue over the long run.

There’s also a risk of losing a lot of your money, as cryptocurrencies are extremely volatile. In May 2021, Bitcoin lost half its value in a week. And even that pales against the crash of 2017, when Bitcoin lost 84% of its value. Today, it has bounced back to see the biggest increase in value since 2020.  In other words, there’s a chance of huge returns when you invest in cryptocurrency, but you should also be prepared to lose your money.

How much you should invest, according to experts

Aaron Tang, Luno Malaysia Country Manager

Aaron Tang, Luno Malaysia Country Manager

Aaron Tang, Regional Manager APAC for Luno Malaysia, shared that cryptocurrencies have many features that make them viable investments. “Cryptocurrencies are considered a good store of value and a hedge against inflation in a global economic environment of increased monetary stimulus and low interest rates,” he said.

“Invest what you can afford to lose”

According to Tang, Bitcoin has been compared to digital gold, and it has all the characteristics that make gold appealing to investors – and more. “It has a limited supply in which only a specific amount of Bitcoin exists and will ever be produced, 21 million. It can be made into smaller units without losing unit value. Its technology makes it very stable, it won’t degrade, and it’s impossible to counterfeit.”

“We recommend beginners to start investing with only an amount you can afford to lose,” he said. “The prime purpose of any investment, be it traditional or digital, is to add more value to your existing wealth. This way, even if you suffer some losses, it won’t completely strip you of your wealth.”

Aaron Tang, Luno Malaysia Country Manager

Yap Ming Hui, Managing Director of Whitman Independent Advisors

However, Yap Ming Hui, Managing Director of Whitman Independent Advisors, doesn’t consider cryptocurrencies to be investments. “I only recommend investments that have solid underlying assets – for example, shares, bonds, property, or precious metal,” he said.

“Crypto should make up than 2% of total investable assets”

“I think that a client’s long-term portfolio for serious financial goals should not include crypto,” he added. But if someone were to invest in cryptocurrency, Yap said.


Marshall Wong, financial planner

Marshall Wong, licensed financial planner

On the other hand, Marshall Wong, a licensed financial planner and founder of PlanNERD, said that cryptocurrency is definitely an investment. “No matter it’s form, as long as there is a demand in the future, it is an investment,” he said. “If collectibles, sneakers and Pokémon cards carry value and are treated as investments among enthusiasts, I don’t see why cryptocurrency is not an investment.”

But he added that not all cryptocurrencies should have a place in an investor’s portfolio, as there is a lot of hype and empty promises driving the prices of many cryptocurrencies.

“Double check your backup plan and exit strategy”

When deciding how much to invest in cryptocurrency, Wong said that it depends on how much you know about the cryptocurrency that you’ve chosen to invest in. “If you are someone that doesn’t know anything about cryptocurrency, stay away,” he said. But if you want to have skin in the game, he added that you should invest an amount that won’t make you feel bad if you lose it all.

“Lastly, even if you are someone that is very well-versed with cryptocurrency, do talk to a financial planner to double check your backup plan and exit strategy,” he said.

Don’t invest what you can’t afford to lose

In short, cryptocurrency is a volatile asset. You could generate huge returns, but also risk losing it all. If you’re new to them, invest only what you can’t afford to lose, and limit it to a small portion of your portfolio.

If you’re planning on investing more than that, make sure you’ve done your research first, and that you’re comfortable with the risk you’re taking. Otherwise, consider sticking to conventional investments.

This article was first published in August 2021 and has been updated for freshness, accuracy and comprehensiveness.

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