If you're considering buying cryptocurrency, start with Bitcoin (BTC 0.86%). Even compared to traditional assets like gold, Bitcoin has lucrative long-term upside potential.
But how much Bitcoin should the average investor hold? The answer might surprise you.
CRYPTO: BTC
Key Data Points
Most investors should own Bitcoin
The question of crypto asset allocation is a common one. There's no doubt that since Bitcoin was introduced, it has proven a terrific investment. Cumulative growth has exceeded 20,000,000% since 2011.
Bitcoin's future growth likely won't be as massive. But there are still several reasonable ways to gauge its long-term potential. Some compare Bitcoin to gold, even calling it "digital gold." Right now, the value of all gold globally is roughly $36 trillion. Bitcoin, meanwhile, has a market cap of just $1.3 trillion. If you believe those figures should be closer together, Bitcoin still has plenty of room left to rise.
Of course, compared to gold -- which has been valued by humans for thousands of years -- Bitcoin remains a relatively speculative asset. It has existed for less than two decades. But the upside potential, and Bitcoin's insurmountable position as the first crypto asset, makes it a reasonable addition to nearly every portfolio. But how much exactly should you bet on this popular cryptocurrency? There's one popular piece of advice worth following.
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Most investors should own Bitcoin
According to Ray Dalio -- a billionaire investor who founded Bridgewater Associates, one of the most successful hedge funds in history -- the optimal allocation to Bitcoin is around 1%. The reasoning here is simple: A 1% allocation generates minimal risk while still exposing your portfolio to the massive long-term upside potential of Bitcoin.
Dalio has put his money where his mouth is, putting 1% of his own portfolio into Bitcoin. "I have a small percentage of Bitcoin," he revealed last year. "I've had it forever, like 1% of my portfolios." While there remains credible long-term uncertainty, Dalio says that Bitcoin has "proven itself. It hasn't been hacked, it's stood the test of time."
The most compelling thing about Bitcoin versus other cryptocurrencies is that it doesn't rely on the flourishing of a global crypto-based economy to succeed. Even if every other crypto asset disappeared, Bitcoin would still have a notable value as a store-of-value asset like gold.
Younger, more technically savvy, or simply more aggressive investors can consider a higher allocation percentage. But if Dalio -- an incredibly successful long-term investor approaching 77 years of age -- is recommending a 1% allocation, that should be the goalpost for most investors.
