Building a crypto portfolio: measuring spread properly

Building a crypto portfolio comes down above all to one thing: deciding how much weight each holding gets. Take the four largest crypto assets for that purpose and you are spreading less than you think. The daily moves of Bitcoin, Ethereum, Solana and XRP ran almost in parallel over the past twelve months, with correlations between 0.82 and 0.90. Four names in a portfolio are therefore not yet four risks.

This article sets out the yardsticks investors use to weight, what a year of price data on the four actually supports, and the part played by holding periods, fees and the route you buy through. A recommendation on which split is right for you is not here: that depends on your investment horizon, your income and your capacity to bear risk, and only you know those.

What a crypto portfolio actually is

A portfolio is the sum of your positions together with their shares of the total value. What matters is not the list of coins but their weight: two assets split 90 to 10 behave entirely differently from the same two split 50 to 50. Weighting is therefore the real decision, and it is often taken in passing, by simply buying whatever is in the news.

To be kept separate from that is allocation, the share of your total wealth that cryptocurrencies make up. Someone holding 2 percent of their wealth in crypto has a different problem from someone at 40 percent, even with an identical split inside the crypto part. The two levels belong under separate consideration.