How to allocate the cryptocurrency that people love and fear: keep this ratio in mind

As cryptocurrencies enter the mainstream financial space, more and more investors are wondering about the optimal percentage allocation to these volatile new digital assets. Wells Fargo has the answer, concluding in a report Tuesday (Sept. 14) that investing 5-10 percent in cryptocurrencies is the optimal allocation when combined with an existing hedge portfolio.

Justin Lenarcic, senior global alternative investment strategist at Wells Fargo, said our analysis shows that a 5%-10% allocation to cryptocurrencies improves Sharpe ratios and reduces correlations with U.S. small-cap stocks when combined with existing hedge fund allocations. According to our analysis, cryptocurrency allocations above this percentage do not provide greater efficiency.