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There is no one-size-fits-all cryptocurrency allocation, according to Charles Schwab Corporation (NYSE:SCHW).
Schwab Director of Digital Currencies Research and Strategy Jim Ferraioli said in a report last week that investors could determine cryptocurrency allocations either through traditional portfolio theory or a risk-budgeting approach.
However, Ferraioli warned that even the smallest allocation could significantly impact portfolio performance, citing the historical volatility of cryptocurrencies compared to traditional assets.
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Bitcoin experienced an annualized volatility of 72.1% between Jan. 1 and Oct. 31, 2025, he said. That number bumps up to 98.3% for Ethereum. Both assets have also experienced maximum drawdowns of over 70%.
Using basic portfolio theory, considering return expectations, volatility and correlations, conservative investors who assume 15% annual returns for Bitcoin could allocate 1% of their portfolio to the cryptocurrency, Ferraioli said. These investors could allocate 0.1% of their portfolio to Ethereum, assuming the same returns, he said.
Ferraioli defined the conservative investor as having 8% of their portfolio in equities and 92% in fixed-income securities. For the moderate investor portfolio—64% equity, 36% fixed income—the allocation could be 6.6% for Bitcoin and 2% for Ethereum, he said.
The allocation could increase to 8.8% for Bitcoin and 2.5% for Ethereum for an aggressive investor portfolio with 96% in equity and 4% in fixed income, Ferraioli said.
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Schwab’s research discouraged meaningful cryptocurrency allocations if expected risk-adjusted returns are less than 10%, Ferraioli said. He also said that allocation using traditional portfolio theory is largely dependent on the investor’s subjective return expectations.
“A moderate investor’s exposure with a 25% expected return from bitcoin suggests a 16.9% allocation, based on our analysis, versus only 1.5% if the investor expects a 10% return,” he said.
Using the risk budgeting approach, investors decide how much risk to allocate to a particular asset class, Ferraioli said. He said Schwab found that it takes only a small cryptocurrency allocation to significantly raise portfolio risk because of their historical volatility.
“In the conservative portfolio it takes only a 1.2% allocation to bitcoin and a 0.9% allocation to ether to reach the 10% risk level,” he said. “Even in the moderate and aggressive portfolios, it doesn’t take much—2.8% and 4.0% bitcoin and 2.0% and 2.9% ether, respectively—to reach a 10% risk threshold.”
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Schwab’s report comes as the broker is reportedly set to release a cryptocurrency trading product within the first half of this year after recently launching a waitlist.
“Investors who want to add cryptocurrency to their portfolios should give careful consideration to their high volatility and speculative nature, and consider how much crypto-derived portfolio risk they feel comfortable with,” Ferraioli said in his report.
For investors looking to translate allocation frameworks like Schwab’s into a personalized portfolio, AdviserMatch offers a free, question-based tool that connects users with vetted financial advisors based on their goals and financial situation. Advisors in the network can help with broader portfolio planning, retirement strategy, and tax-aware investing approaches, allowing investors to evaluate how assets like cryptocurrency may fit within a diversified plan. Consultations are no-obligation and services vary by advisor.
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