Your crypto strategy should be about how much pain you can handle, not how much money you'll make, Schwab finds

Charles Schwab's latest research indicates that the decision to allocate to cryptocurrencies should be based on an investor's willingness to tolerate risk, rather than solely on return expectations. The report highlights that Bitcoin and Ether are highly volatile assets, capable of significantly altering a portfolio's risk profile even with small allocations. For instance, a 1% to 3% stake in crypto can substantially impact a portfolio's behavior during market stress, as these assets have historically experienced drawdowns exceeding 70%. Schwab suggests that traditional portfolio theory, which relies on return forecasts, is less effective for crypto due to wide variations in expected returns. Instead, a risk budgeting approach, where investors determine how much total portfolio risk crypto should contribute, is more appropriate. However, even with a defined risk budget, crypto's volatility can be unpredictable. Ultimately, Schwab concludes that there is no single 'correct' allocation, and the decision is personal, influenced by factors like investment horizon, familiarity with digital assets, and capacity for loss. The firm also reiterates that crypto remains a speculative investment with risks like illiquidity, theft, and fraud, positioning it as a satellite holding rather than a core portfolio component.

(Source：CoinDesk)