Portfolio 60/40 + Crypto
How a small allocation changes our portfolios
Investing in crypto is not a ‘get rich quick’ solution, and you shouldn’t expect that — the more I did, the more money I lost trying to catch the next hot thing or gambling with speculative assets.
However, it is highly rewarding, and even a small allocation can increase the overall performance of our portfolio with reasonable additional risk.
Performance
Crypto is a highly volatile investment but represents a major technological advancement and, with that, a highly rewarding performance. Especially for early investors.
Investing in it feels like investing in cloud technology in the early 2000s.
Comparing BTC or ETH to other investments supports this analogy.
See below the potential and how well it can outperform stocks or gold.
You can explore this data in my sheet.
Learn more: Why Invest in Crypto?, What is Web3 and Why it Matters?
Portfolio allocation — 60/40 with crypto
Many investors still fear the volatility of crypto and how even a small allocation can influence the risk of the overall portfolio. Let’s explore.
Coinbase
According to Coinbase research, even a small allocation to crypto increases risk-adjusted returns meaningfully.
From April 2019 to March 2024:
- traditional 60/40 → 33.3% returns
- with 3% crypto → 52.9% returns
- with 5% crypto → 67.0% returns
The best thing? Volatility increases only from 10.47% to 11.50%, with 5% allocated to Coinbase Core (an index of 10 major cryptocurrencies, mainly Bitcoin and Ethereum), but returns double from 33.3% to 67%.
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Learn more in the report or Crypto’s role in portfolio diversification.
Coindesk
Similar results come from Coindesk’s research, where they measure traditional portfolios with a small allocation to their core CoinDesk 20 index (the 20 biggest cryptocurrencies, with almost 70% in Bitcoin, Ethereum, and Solana).
From the table above, we can see that performance outweighs the small increase in volatility — even while the stocks were powered by AI hype and crypto struggling with ending bear market.
Read the full report.
Both examples show how traditional investors, funds, and asset managers can benefit from exposure to the biggest cryptocurrencies while still managing the risk and volatility they bring.
Many funds are already aware of this. According to 13F reporting, 937 professional funds invested in BTC ETFs in the first quarter of 2024. That’s 886% more than gold ETFs saw in their first quarter*.
Sharpe Ratio
The Sharpe ratio compares the return of an investment with its risk.
It divides the excess returns (return of investment — “risk free rate”) by a measure of its volatility (standard deviation), to assess risk adjusted performance.
A higher Sharpe ratio is better when comparing similar portfolios.
In the Coinbase example above, we can see that sharpe ration increases dramatically with crypto allocation increase.
From 0.41 for traditional 60/40 portfolio to 0.78 with 5% allocation to cryptocurrencies.
This table offers view on different portfolios with their respective sharpe ratios (from 1/1/2021 to 31/10/2024):
- Traditional 60/40 → 0.28
- 60/38 +2% commodities → 0.30
- 60/38 +2% Bitcoin → 0.37
- 60/38 +2% COIN50 → 0.39
COIN50 is a new index created by Coinbase representing the 50 biggest cryptocurrencies weighted by their market capitalization (similar to S&P 500 is for equities).
From the data we can see that small allocation to cryptocurrencies increase the performance of overall portfolio.
Not only that, but it also outweighs the increased risk due to the volatility of crypto assets.
Also, index including altcoins outperforms the bitcoin only exposure (not by much).
