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How much to invest in cryptocurrency

Wondering how much to invest in cryptocurrency in 2024? This guide explores 7 tips that will help you decide how much to risk on altcoins.

This guide will teach you how much to invest in cryptocurrency today. We will be sharing top tips as well as the factors you need to pay maximum attention to when deciding how much of your portfolio to allocate digital assets.

We will also look at how much experts believe you should commit to the best altcoins and introduce you to top strategies for investing in cryptocurrencies today.

How Much to Invest in Cryptocurrency – Key Factors

To help you strike a balance between high yields and keeping your investment safe, our analysts encourage all our readers to take these factors into account when considering how much to invest in cryptocurrency.

  • Investing Goals: First, decide if you want to invest in this asset over the longer term or short term.
  • Risk tolerance: Assess your risk tolerance, consider the risk profile of your preferred cryptos, and only invest what you can afford and are willing to lose.
  • Disposable income: Take your disposable income into account. This is what remains after you have sorted your expenses, set up an emergency fund, and sorted all your liabilities.
  • Market timing and direction: How much to invest in cryptocurrency should also be influenced by the crypto market action and its most likely future direction. Avoid investing when the market is crashing and crypto prices are in a free fall.
  • Type of crypto asset: The crypto investment amount should also be informed by the type of digital asset you wish to invest in. Popular investments include NFTs and virtual currencies. Before investing in either, examine their accessibility, liquidity, resilience, and future price forecast.
  • Understanding of the market and trading experience: How much to invest in cryptocurrency assets should also be influenced by your understanding of the crypto-verse, trading experience, and ability to accurately interpret different market-related events.
  • Level of diversification: You may also want to consider the level of diversification of your investment portfolio and the level of correlation between digital assets and the rest of the asset classes.

Below, we will explore all these factors in detail. We will also tell you how much expert investors believe you should invest in cryptocurrencies. And even introduce you to what our analysts believe to be the most effective strategies for investing in the hottest cryptos.

Crypto asset investing is highly volatile and unregulated in some EU countries

Factors To Consider When Deciding How Much to Invest in Cryptocurrency

Factors to consider on how much to invest in CryptoCryptocurrencies were the most lucrative investment product of the last decade. But they have also been determined to be the most volatile asset class.

Here is a rundown of the critical factors you need to pay attention to when deciding how much to invest in the crypto market.

Investing Goals

Top among the factors you need to consider when investing in crypto is your investing goals. You first need to decide if you are investing in crypto over the short-term or longer term. This is important as it affects your approach to risk, the type of crypto to invest in, and – by extension – the investment amount.

For example, let us assume you are young and investing in crypto for retirement. This would mean that even if you started by investing a small amount in one of the best future cryptocurrencies, this amount would compound and shoot to unprecedented highs over the next few years.

For example, if you invested in Bitcoin when it was selling for less than $1 in 2009, with the hope of retiring in 2021, you would have grown this investment by more than 690X.

To achieve similar capital gains over a short period of time – you would have to either have to invest much more or bet on a high-reward but high-risk asset – like a meme coin.

Risk tolerance

Another consideration to make when assessing how much to invest in cryptocurrency is the risk associated. There are three core levels of risk tolerance, i.e. aggressive, moderate, and conservative. Investors in the aggressive risk tolerance category are usually highly experienced and have a longer time horizon to achieve their goals.

These are, therefore, willing to stake everything on a specific high-risk-high-return digital asset like a new meme coin or the shiny NFT project. These have the potent or rallying 100X in a short time or flopping. They aren’t afraid of risk because they have enough time to recover should they suffer any major losses.

Investors with a moderate risk tolerance profile aren’t afraid of interacting with high-risk-high-return assets. Their approach to crypto investing, however, isn’t wildly aggressive and their risk tolerance is subtly tamed.

Their crypto portfolio will, therefore, include both high and moderate-risk digital assets. They will have their investment split between relatively stable and massively resilient cryptos like Bitcoin or Ethereum and such high-risk altcoins like PEPE and ApeCoin.

Conservatives, on the other hand, always avoid high-risk investment products, irrespective of their possible payout. They will only have a small portion of their portfolio dedicated to cryptos. Even then, they will only go after what they consider relatively stable and resilient virtual currencies with a promising future, like Bitcoin, Ripple, and Solana.

By first determining your risk tolerance level, you get better at deciding not just the coins to buy but also how much you need to invest and allocate to each of these virtual assets.

Disposable income

Disposable income, in this case, refers to the cash that remains at hand after sorting all your expenses. Assuming you only have a salary as your income source, the disposable income is the amount that remains after settling your living expenses and such other liabilities as debt/mortgage and tax. We also encourage our readers to first set up an emergency fund – between 6 and 12 months – before electing to invest in cryptocurrencies.

In most cases, a high disposable income is often an indicator of moderate-to-high risk tolerance – especially when the investor has a stable income source. If you, for example, earn $4,000 every month and have total liabilities of $2,500 – you have a disposable income of $1,500.

Depending on such other factors as your risk tolerance, understanding of the crypto market, trading/investing experience, and age – you may dedicate all or a portion of this amount to buying cryptocurrencies.

Market timing and direction

When you enter the crypto market also goes a long way in influencing how much you commit to your crypto portfolio. The ideal entry point – as is with virtually any other financial market – is right after a price crash. At this point, assets are selling at massively discounted prices. Given that the majority of these will eventually rebound and rally back to original price levels, getting in at this point exposes you to unprecedented gains when the market starts recovering.

Assuming you identified a few gems with a hugely promising future during a market crash, you are free to throw at them as much of your disposable income as possible. At this point, even investors with conservative risk tolerance profiles jump in head-on.

But if you are entering the crypto market while the virtual currency prices are at their peak or at the start of a market downtrend, you will want to be highly risk averse. We encourage our readers – especially short to medium-term investors – to avoid investing in the crypto market at this point. If you must, only commit a small portion of your disposable income to the most resilient and relatively stable coin – like Bitcoin,

Type of crypto asset

There are two primary types of digital assets – virtual currencies and Non-Fungible Tokens (NFTs). And how much you invest in cryptocurrency should also be influenced by your choice of a digital asset. It is no secret that some cryptocurrencies are decently stable, have a more promising future, and have the backing of solid and useful blockchain technologies.

Total Crypto Market Cap

The same cannot be said of the majority of NFTs, given that most of these derive much of their value from hype. They have no real-world utility apart from being used as an instrument of speculative investing. Most of these don’t even have the backing of a solid/useful mainnet blockchain, which dents their sustainability.

You may, therefore, want to consider dedicating enough to some of the best cryptos to buy today, like Cardano, Cosmos, and Litecoin. Their resilience and steadily rising use cases are expected to continue driving their value up. The same cannot be said of most NFT projects whose value starts nosediving as soon as the hype around their launch.

Understanding of the market and trading experience

Another assessment to make when evaluating how much to invest in cryptocurrency is the understanding of the crypto market as well as your crypto trading experience should also play a critical role in helping you decide how much to invest in Bitcoin.

Most experienced crypto traders/investors often find themselves in the moderate-to-aggressive risk tolerance level. Beginner crypto investors are, on the other hand, mostly risk-averse.

Experienced traders and investors with a deep understanding of the crypto market are also able to spot and invest in the next cryptos to explode. They are also able to easily determine how different news and events will shape the price direction of either the crypto market or specific crypto. This allows them to invest in a coin with a promising future or liquidate their investment if a crypto asset is falling into ruins.

Experienced traders are, therefore, free to invest a significant portion of their disposable incomes in promising virtual currencies. Inexperienced investors, on the other hand, are encouraged to start small and only buy beginner-friendly cryptocurrencies that are not only resilient but also have the most promising future.

Level of portfolio diversification

The answer to how much you should invest in crypto can also be traced back to the level of diversification of your crypto portfolio. Just as we would advise individuals considering any other investment class, we encourage our readers to consider diversifying their crypto portfolio. Instead of staking everything you have on one cryptocurrency, consider splitting this investment to include multiple cryptos.

How much to invest in crypto allocation

Source: icodrops.com

From our example above of having a disposable income of at least $1,500, do not just invest it all in Bitcoins. Instead, research more about equally promising virtual currencies, NFTs, and highly potent new cryptos – including pre-sales. Instead, consider investing a third of this in resilient and promising assets like Bitcoins and Ethereum.

Consider dedicating another third to moderate-to-high-risk crypto assets, especially top altcoins, meme coins, and NFTs. Then invest the last third of this disposable income into pre-sale tokens with the most promising future. These need to be backed by a solid blockchain, have real-world and urgent use cases, be developed and backed by reputable programmers and venture capitalists, and have a clear roadmap with transparent tokenomics.

Diversification ensures that even if one of the investment pools starts downtrending, its impact on your overall investment will be low. Possible dents from such a negative price action will be covered by the rest of the cryptos that may be uptrending.

Crypto asset investing is highly volatile and unregulated in some EU countries

How Much Should I Invest in Crypto? According to the Experts

When asked how much you should invest in cryptos, the majority of crypto analysts and expert investors start with the disclaimer – not more than to can afford to lose. They then go on to share their opinion – mostly a subjective answer informed by their biases towards or against cryptocurrencies and blockchain technology.

Here is how much to invest in cryptocurrency according to some crypto experts:

At least 1% – Chamath Palihapitiya

Chatham Palihapitiya is commonly referred to as the ‘King of SPACs’ given his success in acquiring companies that he letter takes public. He is also a celebrated entrepreneur and one of Facebook’s earliest investors. He argues that everyone –regardless of whether they believe in the future of cryptos and blockchain or not – should convert at least 1% of their portfolio to crypto.

At least 4% or 6% – Yale University study

In 2019, an economics professor from Yale University – Aleh Tsyvinski – published a study which encourages everyone to invest at least 4% or 6% in cryptocurrencies. In this research paper, Aleh and the team conclude that the most conservative investors who aren’t too confident about digital currencies should convert at least 1% of their portfolio to crypto.

The paper goes on to state that investors who are less passionate about crypto technology and its effectiveness as an investment product should invest at least 4% in virtual currencies. Crypto enthusiasts are, on the other hand, called upon to invest at least 6% of their portfolio in cryptos like Bitcoin.

Not more than 10% – Alex Doll

Alex Doll, the president of Annfield Wealth Management, adopts a different approach to advising how much to invest in cryptocurrency or top leading altcoins. He argues that you first need to create a portfolio featuring both risky assets like stocks and stable regular income generators like bonds.

Then go ahead and invest at most 10% of the risky portfolio in cryptocurrencies. This implies that if you have 80% of your portfolio dedicated to risky investments, you may comfortably convert up to 10% of this (8% of the entire portfolio) to crypto.

Practical Tips on How to Buy Crypto Today

You are now familiar with the factors to consider when deciding how much to invest in cryptocurrency. You have also seen the percentage of your portfolio that experts believe should be converted to crypto. Below, we show you how to buy crypto by looking at the two most effective crypto trading strategies:

Timing the dip

Timing the dip in the crypto

Timing the dip is an age-old investment strategy used first in conventional markets and in crypto investing. It involves waiting for the market to in order to buy the best cryptos at the dip – at a highly discounted price. Here is an example, if you bought BTC after its price crash in late 2018 when it was selling for $3000, you would have grown your capital by more than 2300% when it peaked at around $69,000 in November 2021.

Dollar Cost Averaging (DCA)

In place of sitting pretty for years waiting for the next market crash to buy the dip, experts recommend the dollar cost averaging investing strategy. This involves buying small amounts of cryptos at regular intervals. You could, for instance, decide to be buying crypto worth $100 every week, bi-weekly, or monthly. Note that most of the best crypto exchanges have even automated this investing strategy and will even let you automate this investing strategy.

What Percentage of Your Portfolio Should be in Crypto?

Unfortunately, there is no standard unit specifying the percentage of your portfolio that you may invest in cryptos. The decision is quite personal, as investing conditions vary from one individual to another. The general rule of thumb when crypto investing, however, is that you should only invest what you are willing and able to lose.

Conclusion: How Much to Invest in Cryptocurrency

There goes everything you need to know about how much you should invest in cryptocurrency today. We conclude by acknowledging the subjectivity of the answer to this question. That there is no standard amount or portion of a portfolio that one should allocate to crypto investing.

Rather, you are encouraged to only buy Bitcoin and other cryptos with what you can afford to lose. The factors have discussed hereinabove should also play a critical role in helping you determine how much of your disposable income should go to crypto.

Author Checked Reviewed and Fact Checked by Joshua Downes, Fintech Writer and Investment Analyst.

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FAQs

How much should you invest in cryptocurrency?

Only you can decide how much you wish to invest in cryptocurrencies after self-evaluation and consideration of such important factors as your risk tolerance, disposable income, type of digital asset, and your crypto trading/investing experience.

Ideally, the best time to buy a crypto is during pre-sale or ICO/IEO. The second best time to buy a virtual currency is after a crypto market crash when they are selling at a heavily discounted price. And if you miss buying at both these stages, consider using the dollar cost averaging (DCA) investing strategy.

The minimum you can invest in crypto largely be determined by your choice of a crypto trading platform. Exchanges like Binance, for example, let you buy crypto for as low as $1, while the likes of eToro have a minimum trade limit of $10.

This, too, is dependent on such factors as your risk tolerance, understanding of the crypto market, trading experience, preferred digital asset, and more. Nevertheless, most experts encourage you to have at least 1% - 5% of your portfolio converted to cryptos.

Beginner crypto investors should only go for relatively stable cryptos with a history of proven resilience and a record of stellar past price action. Beginner-friendly cryptos should have the backing of a sustainable blockchain and a massively promising future. Examples of such coins are Bitcoins, Cosmos, Stellar, Chainlink, and Ethereum.