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What Percentage of Your Portfolio Should Be in Cryptocurrencies?

By Motley Fool Staff - Mar 31, 2021 at 8:22AM

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Does cryptocurrency have a place in a diversified investment portfolio? And if so, how much should you own?

Traditionally, a diversified investment portfolio has been thought of as an age-appropriate mix of stock and bond investments. But what about cryptocurrencies? In this Fool Live video clip, recorded on March 18, Gemini cryptocurrency exchange co-founder Cameron Winklevoss sits down with our own chief growth officer, Anand Chokkavelu, to share his thoughts on where cryptocurrency could fit into a well-rounded investment portfolio. 

Anand Chokkavelu: I'm going to say that most of the people haven't invested in cryptocurrency at all. What percentage of a portfolio seems reasonable to you to split between stocks versus crypto?

Cameron Winklevoss: Yeah, that's a really interesting question. Look, Tyler and I we joke, we don't have our skin in the game, we have our bodies in the game. We are long Bitcoin (BTC -1.38%), Ethereum (ETH -2.30%), a couple of other projects, and we obviously founded Gemini. We're the sole investors in Gemini. We're all in, and heavily weighted crypto.

I think maybe a starting point for investors, to look to see if you do have a gold allocation. What is that? Is that between 1 and 5% of your portfolio? Then ask yourself, this new form of gold, should you have some exposure, and whether that's taking all of your gold exposure and putting it in Bitcoin or some fraction of it.

Tyler and I wrote a thought piece on why we think Bitcoin is worth $500,000 a coin in August. The Bitcoin was trading around $13,000 a coin. We used the gold framework to back into that price for Bitcoin. At $50,000 a Bitcoin, yes, it's depreciated five times, but we believe there's another 10x in it within the decade, potentially more, because Bitcoin can really reach more people than gold because of its properties.

I can't think of another investment that offers that asymmetric return over the next decade. If that's 1% of your portfolio, that becomes 10%. That's a pretty awesome return, a worst-case scenario you've lost 1%, but you've got that 10% or 10x upside. I think that Bitcoin is not just like an asset, it's really like a movement. It's kicked everything off, the decentralization of the world, and I think that it really should be viewed under the lens of a invention or innovation that is as powerful as the internet.

The problem with the internet is you have to pick companies. You can't really index the entire internet. I guess you could buy a basket of stocks, but early on, if you could actually buy property on the internet, that would be the best way to do it. With Bitcoin you can buy property of the network, and with Ethereum you can buy property of the network. These are movements and when you talk to millennials and Gen Z, and I think millennials will become a huge percentage of the workforce within the next decade.

You don't have to explain to them why they want software instead of hardware and physical gold, it's understood. You don't have to convince them. They're already in crypto, they already live online. They see and they understand fluently where it's going. It's a bet also that all these individuals that are coming into the workforce and starting to earn value, where are they going to store it? They're not going to store it in the IBMs or the blue chip equities. I think they're going to put in to crypto, and so it's really a index on the future. I think that's the right way to look at it, and so how much you want to allocate to the future?

We've seen what FAANG has done in the past decade. You could have said, "2014 you are late to Amazon." It's like 5x from 2014, and I don't think it's slowing down, because these companies are building into the future, and they've got incredible network effects. Bitcoin and Ethereum are networks. The more people that adopt and enter these networks, the more value. They follow net cash flow, which is just n squared, the more nodes or participants. It's like buying a cellphone.

If there's only one person with a cellphone on the planet, it's not a very useful technology. If you buy a cellphone, all of a sudden without knowing, you've made mine have more utility and more value. You can't take the company model or discounted cash flow when looking at Bitcoin or Ethereum, you have to look at them as really networks of money and value, and you're incredibly powerful and they have incredible growth potential. That's the lens, I would not take the DCF company model that Warren Buffett uses. That's why he doesn't really get Bitcoin because he's not paid to see the future, he's paid to find things that are cheap. I don't think he ever will get Bitcoin, and that's OK.

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