To Lower Crypto Investment Risk, Diversify Your Digital Asset Bets
Volatility is nothing new for crypto investors, and 2025 has been a wild ride, with bitcoin climbing above $125,000 in October before experiencing several sharp drops — peak to trough, a decline of over $40,000 from its record high.
According to Zach Pandl, head of research at Grayscale Investments, a digital currency asset management company, crypto is a volatile asset class, and in some sense, there is no avoiding that volatility.
Understanding the Risks and Opportunities
Bitcoin is now trading near $88,000, and whether the next move is up or down, investors in the crypto space need to have what it takes to stomach the volatility.
However, there may be some help — in the form of new market ideas and classic diversification concepts — to cushion portfolios from at least some of crypto’s risk-on nature.
Position Sizing and Diversification Strategies
The first step is to make sure your crypto position sizing within your portfolio is appropriate.
Some financial advisors are going out on a limb and telling investors to hold as much as 40% in crypto. But for most investors, there is a strong case to be made for crypto remaining only a modest part of a broadly diversified portfolio.
Managing Volatility with ETFs and Index Funds
Investors can also now take an index-based approach within ETFs, which is a convenient way to gain diversification in crypto, while managing volatility.
Grayscale has an index fund, the Grayscale CoinDesk Crypto 5 ETF (GDLC) that became available as an ETF in September and holds a basket of the top five crypto assets weighted by market capitalization.
Working with a Financial Advisor
One of the ways to encourage diversification — and shield against big portfolio swings — is to work with a financial advisor who can help you craft an appropriately diversified portfolio that includes crypto.
Not all advisors incorporate crypto into their model portfolios, but that’s starting to change as digital assets gain traction.
Conclusion
Another way to reduce crypto’s volatility is dollar cost averaging, which involves systematic weekly or monthly purchases of crypto.
That way, whether it’s going up or going down, you’re buying in at various prices, which can help smooth out the volatility.
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