Module 15: Crypto in Your Personal Finances

How Much Crypto?

Chapter 4 of 12 · about 4 minutes

4.1 The most important number

"I've learned so much about which crypto to buy," said Mint. "But I've never really decided how much of my money should be in crypto at all."

"That number matters more than any token you pick," said Hash. "Choosing a great token with too much of your money can still damage your life. Choosing an average token with a sensible amount rarely will."

4.2 Why allocation matters more than selection

Consider an investor with $100,000 of total investable assets, and a severe crypto bear market where crypto holdings fall 80% (Module 1, Chapter 13).

Crypto allocationCrypto valueLoss in an 80% crashImpact on total portfolio
2%$2,000−$1,600−1.6%
5%$5,000−$4,000−4%
10%$10,000−$8,000−8%
30%$30,000−$24,000−24%
80%$80,000−$64,000−64%

At 5%, a crypto crash is unpleasant but manageable. At 80%, it's a financial crisis. The crypto assets and the crash are the same; only the allocation differs.

Chapter 4 · How much crypto

If crypto falls 80%, the hit to the whole portfolio depends on allocation: a 2% allocation loses about 1.6%, 5% loses 4%, 10% loses 8%, 30% loses 24%, and an 80% allocation loses 64%. Allocation size, not asset selection, dominates the outcome.

Your allocation, not your token picks, decides how a crash feels. The same 80% crypto drawdown barely dents a 2% allocation but takes most of a portfolio at 80% — which is why position size is the real risk decision.

4.3 Three ways to think about allocation

1. The "could I lose it all?" test. Allocate an amount you could lose entirely without changing your life, damaging your goals, or causing you to panic. For speculative tokens, this is the right test. For Bitcoin and Ether, total loss is less likely but still possible, and severe drawdowns are common.

2. The drawdown tolerance method. (Module 12, Chapter 3) Decide the maximum loss you could tolerate, then divide by a realistic severe drawdown.

Value
Maximum tolerable crypto loss$8,000
Assumed severe drawdown for a BTC-heavy crypto portfolio75%
Maximum crypto allocation$8,000 ÷ 0.75 ≈ $10,700

3. The percentage-of-portfolio approach. Many advisers who include crypto in portfolios suggest small allocations, often in the low single-digit percentages of total investable assets, and sometimes higher for younger investors with long horizons and high risk tolerance. There's no universal right number, and opinions differ widely, from zero to much higher.

"So different methods might give different answers," said Mint.

"Use the most conservative one that fits your situation," said Hash. "You can always add more later. It's much harder to undo a crash."

4.4 Factors that should lower your allocation

FactorWhy
Short time horizon (Chapter 3)Less time to recover from drawdowns
Unstable incomeHigher chance of needing to sell
Dependants or significant obligationsOthers rely on your finances
Limited savings outside cryptoLess cushion for shocks
Working in the crypto industry (Chapter 1)Income is already exposed to crypto
Low emotional tolerance for volatilityMore likely to panic sell (Module 12, Chapter 9)
InexperienceStill learning (Module 12, Chapter 1)

4.5 Factors that might allow a higher allocation

FactorWhy
Long time horizonMore time to recover
Stable income and strong foundationsLess risk of forced selling
High proven tolerance for volatilityHeld through past drawdowns without panic
Experience and a written planLess likely to make emotional mistakes (Module 12, Chapter 14)
Holdings mostly in BTC and ETH, not speculative tokensLower risk of total loss than small tokens

4.6 What goes inside the allocation

Once you've decided the total crypto allocation, the core and satellite structure (Module 11, Chapter 13, and Module 12, Chapter 5) organises it.

Example: Node's allocation

Value
Total investable assets$200,000
Crypto allocation chosen8% = $16,000
Core: BTC and ETH (75%)$12,000
Satellites: thesis-based positions (20%)$3,200
Speculative (5%)$800

The 75/20/5 split and the choice of BTC and ETH as the core are Node's own, shown here only to illustrate the structure; what belongs in your core depends on your own conviction and criteria (Module 11, Chapter 13).

In an 80% crash across the whole crypto allocation, Node would lose about $12,800, or 6.4% of total investable assets. Painful, but survivable.

4.7 Revisit, don't drift

As Module 12, Chapter 5 explained, allocations drift as prices change. After a strong rally, a 5% allocation can become 15% without you buying anything. Rebalancing back to target, on a schedule or when drift exceeds a set range, keeps risk under control. Remember the tax implications of rebalancing (Module 14).

4.8 Try it yourself

Calculate your current crypto allocation as a percentage of total investable assets. Apply all three methods from section 4.3 to find a target range. Then list the factors from sections 4.4 and 4.5 that apply to you, and choose a target allocation. Calculate what an 80% crypto crash would do to your total portfolio at that allocation.

Key takeaways from this chapter

  1. How much of your money is in crypto matters more than which tokens you pick.
  2. The same 80% crash costs 4% of a portfolio at a 5% allocation, and 64% at an 80% allocation.
  3. Useful methods include the "could I lose it all?" test, the drawdown tolerance method, and percentage-of-portfolio approaches.
  4. Short horizons, unstable income, dependants, limited savings, crypto industry employment, and inexperience argue for smaller allocations.
  5. Use the most conservative reasonable answer; you can add later, but crashes are hard to undo.
  6. Organise the allocation into core, satellite, and speculative parts.
  7. Rebalance when allocations drift, considering taxes.