To diversify a crypto portfolio, start with the share of your whole portfolio that crypto takes up, because that number limits your losses more than the number of coins you own. After that, spread money across asset classes and within them, and rebalance when price moves push crypto above the share you planned. BlackRock's research on sizing bitcoin calls 1-2% of a traditional 60/40 portfolio "a reasonable range" (December 11, 2024). Its August 17, 2026 update still finds that 1–2% "would have improved risk-adjusted returns" over 10 years. The UK Financial Conduct Authority's view, as of January 29, 2026, is that anyone buying crypto "should be prepared to lose all your money."
Step 1: Size the crypto share against your whole portfolio
What BlackRock's numbers show
The BlackRock Investment Institute's paper "Sizing bitcoin in portfolios" (December 11, 2024) measures bitcoin by how much risk it adds, not by how much money goes into it. Its comparison point is the "magnificent 7" mega-cap tech stocks. In a 60% stock / 40% bond portfolio, each of those seven stocks adds on average "about the same share of overall portfolio risk" as a 1-2% bitcoin position.
The paper's chart shows how quickly risk grows with size:
- 1% in bitcoin: about 2% of total portfolio risk.
- 4% in bitcoin: about 14% of total portfolio risk.
The authors write: "Going beyond that would sharply increase bitcoin's share of the overall portfolio risk." They also point out that bitcoin "has no underlying cash flows," so its expected return depends mainly on how widely it is adopted.
The latest update, August 2026
BlackRock's "Re-Underwriting Bitcoin" (August 17, 2026, Robbie Mitchnick) came out after bitcoin "pulled back roughly 50% from its October 2025 highs." The paper says crypto-native deleveraging and shifting investor flows drove most of the fall. An updated 10-year analysis still finds that "a modest 1–2% allocation to bitcoin would have improved risk-adjusted returns in a traditional 60/40 portfolio." The page does not give the risk-adjusted figures.
These figures come from an asset manager that sells bitcoin products, and they look backwards. They are not a recommendation for any individual.
What the regulator says
The FCA's InvestSmart page on crypto (updated January 29, 2026) says three things:
- "You should never invest money into crypto that you can't afford to lose."
- If you do invest, do it "as part of a diversified portfolio with investments being no more than you can afford to lose."
- "Crypto prices can move suddenly with no warning."
The FCA also says the Financial Services Compensation Scheme and the Financial Ombudsman Service "will not cover you just because your investment performs badly."
Step 2: Diversify across asset classes, then within them
The SEC's investor guide to asset allocation defines diversification as "the practice of spreading money among different investments to reduce risk." It says a diversified portfolio "should be diversified at two levels: between asset categories and within asset categories."
For crypto, the two levels are:
- Between asset categories. Crypto is one slice next to stocks, bonds and cash. Most of the protection comes from this level, because the other slices do not depend on crypto prices.
- Within the crypto slice. Spreading across several tokens limits the damage if one project fails. It does little against a fall in the whole market.
Why owning more coins may not protect you
Diversification needs holdings that do not all fall at the same time. The IMF blog "Crypto Prices Move More in Sync With Stocks, Posing New Risks" (January 11, 2022; Tobias Adrian, Tara Iyer and Mahvash S. Qureshi) reported that the correlation between bitcoin and S&P 500 returns was 0.01 in 2017–19. It rose to 0.36 in 2020–21.
BlackRock's 2026 paper sees it differently. It says bitcoin has kept "low correlation to traditional risk assets" over longer horizons, and that periods of elevated correlation with risk assets "have been episodic rather than structural." The two sources cover different periods. Both point the same way for planning: during a sell-off, crypto can fall at the same time as stocks, just when diversification is needed most.
Why spreading within crypto still matters
The SEC's account of TerraUSD (UST) shows what concentration in a single project can cost. According to the SEC (June 13, 2024), in May 2022, "after UST de-pegged from the U.S. dollar," the price of UST and Terraform's other tokens "plummeted to close to zero," which "wiped out $40 billion in market value nearly overnight." Anyone holding only that ecosystem lost almost all of the position. A spread position would have taken a smaller hit.
Two practical checks follow from this:
- Count the sources of risk, not the tickers. Several tokens from one project or one issuer can fail together.
- A token designed to hold a dollar peg is not cash. UST was designed to track the US dollar and still collapsed.
How far has your crypto share drifted?
Enter the crypto share you planned and how much crypto and the rest of your portfolio have moved, and see crypto's new share of the whole portfolio.
| Crypto share of your whole portfolio you planned | Change in your crypto holdings since you set the target | Change in the rest of your portfolio over the same period | Crypto share of your whole portfolio now |
|---|---|---|---|
| 2 % | 100 % | 0 % | 3.9 % |
| 2 % | 100 % | 0 % | 3.9 % |
| 2 % | -50 % | 0 % | 1 % |
| 1 % | 100 % | 0 % | 2 % |
- All three values are your own inputs. The 2% target and the doubling repeat the article's worked example and are not a recommendation.
- A result above your target means crypto now takes a bigger share than you planned; the article lists three ways to bring it back: sell some of it, buy more of the other assets, or send new money to the other assets.
This only works out the money share. It does not measure how much risk that share adds, does not tell you what share is right for you, and leaves out fees and tax from rebalancing.
Step 3: Rebalance back to your target
Volatile assets drift. Here is a simple example: you set crypto at 2% of a portfolio, crypto prices double and everything else stays flat. Crypto is now about 3.9% of the total (4 out of 102). By BlackRock's risk measure, it now contributes far more risk than you planned.
The SEC guide describes two common ways to rebalance:
- On a schedule: at "a regular time interval, such as every six or twelve months."
- On a threshold: when an asset class moves "more than a certain percentage that you've identified in advance."
It adds that rebalancing "tends to work best when done on a relatively infrequent basis." There are three ways to bring a portfolio back to target:
- Sell some of the overweight asset.
- Buy more of the underweight assets.
- Send new contributions to the underweight assets.
Before choosing a method, the guide says to consider "whether the method of rebalancing you decide to use will trigger transaction fees or tax consequences." This matters for crypto, because many countries tax each sale of crypto as a disposal.
A short checklist
- Write down the crypto share of your total portfolio, not the share of your crypto holdings.
- Keep it at a level you could lose entirely, as the FCA's guidance puts it.
- Check whether your tokens depend on the same project, issuer or peg.
- Pick a rebalancing rule (dates or a threshold) and write it down before prices move.
- Check fees and the tax treatment where you live before you sell.
Limitations: the allocation figures are one asset manager's historical analysis, and correlations change over time. Nothing here is personal investment advice.
