Position sizing when 80 percent drawdowns are normal
The question is never whether crypto will fall a long way. It is whether you will still be solvent and sane when it does.
The base rate nobody plans for
Bitcoin has fallen more than 70 percent from a high on several separate occasions and recovered each time. Most other assets fell further and many never recovered. Any position you hold should be sized on the assumption that this will happen again, because historically it always has.
The only question that matters
If this position fell 80 percent tomorrow and stayed there for two years, would it change my life, my relationships or my sleep? If yes, it is too big. That is the entire framework and it is more useful than any allocation model.
A sensible structure
BEFORE YOU MOVE ON
Common questions
How much of my portfolio should be in crypto?
An amount whose total loss would be disappointing rather than damaging. For most people with other financial commitments that is a small single digit percentage. There is no formula that beats that test.
Should I use leverage on crypto?
Not while learning, and arguably not at all. Crypto already moves enough that leverage mostly guarantees you are liquidated on ordinary volatility.
Risk warning: crypto is highly volatile and largely unregulated. You can lose everything you put in. Nothing here is financial, investment or tax advice.