Crypto is ‘like cayenne pepper’ for investors, money manager says: 'A little goes a long way'

cnbc.com:

Katherine Dowling has an analogy that may be useful for investors thinking of buying cryptocurrency like bitcoin and wondering what amount is appropriate.

It's «like cayenne pepper,» said Dowling, general counsel and chief compliance officer at Bitwise Asset Management, a crypto money manager. «A little goes a long way» in a portfolio, she explained earlier this month at Financial Advisor Magazine's annual Invest in Women conference in West Palm Beach, Florida.

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Ivory Johnson, a certified financial planner and member of CNBC's Financial Advisor Council, said the description is apt.

«The more volatile an asset class is, the less of it that you need,» said Johnson, who founded Delancey Wealth Management, based in Washington, D.C.

Cryptocurrencies are digital assets, a category that should be considered an «alternative investment,» Johnson said.

Other types of alts may include private equity, hedge funds and venture capital, for example. Financial advisors generally consider them separate from traditional portfolio holdings like stocks, bonds and cash.

Allocating 2% or 3% of one's investment portfolio to crypto is «more than enough,» Johnson said.

Let's say an asset grows by 50% this year, and an investor holds a 1% position. That's like having a 5% position in another asset that grew 10%, Johnson said.

Whether investors buy in to crypto — and how much they hold — will depend on their tolerance and capacity for risk, Johnson said.

For example, long-term investors in their mid-20s can afford to take more risk because they have ample time to make up for losses.