Overview

• Crypto has matured in infrastructure and compliance, but volatility and regulatory uncertainty remain. This post frames crypto as a satellite allocation, not a core holding.

Role in a Portfolio

• Potential benefits: asymmetric upside, diversification, innovation exposure.

• Key risks: drawdowns, custody risk, regulatory/tax treatment, liquidity.

Allocation Framework

• 0–5% for most investors; 5–10% only for high risk tolerance.

• Dollar-cost averaging (SIPs) to reduce timing risk.

• Rebalance periodically; harvest gains when allocation exceeds target.

Asset Selection

• Tiered approach:

  • Tier 1: BTC, ETH (liquidity, network effects).

  • Tier 2: Large-cap L1s/L2s with real usage.

  • Tier 3: Thematic (DeFi, RWA, AI infra) only after Tier 1 foundation.

• Avoid over-diversification; 2–4 assets can suffice.

Access and Custody

• Regulated on-ramps; comply with KYC.

• Prefer self-custody with hardware wallets if holding significant amounts.

• For convenience: vetted exchanges with proof-of-reserves and strong security.

Risk Controls

• Position sizing and stop-loss rules for traders.

• No leverage for long-term investors.

• Secure backups; multisig for larger holdings.

Tax Considerations (India)

• Track every trade for capital gains computation.

• Maintain audit-ready records; consider dedicated crypto tax tools.

• Be aware of TDS rules and any updates affecting exchange transactions.

Red Flags

• Promises of fixed returns.

• Illiquid microcaps and opaque tokenomics.

• Centralized programs without audits or disclosures.

Practical Steps

• Define thesis and target allocation before buying.

• Automate SIPs; set alerts for rebalancing thresholds.

• Quarterly review: fundamentals, usage metrics, regulatory news.

Conclusion

• Crypto can be a small, disciplined satellite in a diversified plan—if risks, custody, and taxes are handled with rigor.

Call to Action

• Download the crypto allocation worksheet. Want a second opinion on holdings? Book a review.

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