INSTITUTIONAL | Leading Global Brokerage Firm with $12 Trillion in Client Assets Outlines 2 Approaches to Crypto Allocation

Charles Schwab, a global brokerage firm with almost $12 trillion in client assets, is urging investors to rethink how they approach crypto exposure, saying strategy should be based on risk tolerance rather than potential returns.

In a recent analysis, the brokerage found that even small allocations to digital assets can significantly reshape a portfolio’s risk profile. Exposure of just 1% to 3% to cryptocurrencies like Bitcoin or Ethereum can materially increase volatility and alter overall performance dynamics.

Schwab said the key question for investors is not how much money crypto can make, but how much downside they can take during sharp market swings noting that major cryptocurrencies have historically experienced drawdowns of more than 70%.

The firm outlined two approaches to crypto allocation:

• one focused on expected returns and diversification benefits, and
• another centered on managing total portfolio risk.

The firm emphasized that position sizing remains critical given crypto’s outsized impact even at low allocations.

The first approach is a traditional allocation model and framework that produces highly variable outcomes based on investor conviction as this chart demonstrates.

The second approach is a risk-budgeting framework that allocates crypto based on contributions to total portfolio risk rather than expected returns.

In such a scenario, Schwab notes:

“It takes only a 1.2% allocation to bitcoin and a 0.9% allocation to ether to reach the 10% risk level.”

Looking at the 2 approaches, Schwab says:

“There is no ‘correct’ allocation to cryptocurrencies, and we believe the decision is largely a personal one.Even small allocations to bitcoin or ether can significantly affect portfolio performance.”

The findings come as traditional financial institutions deepen their engagement with digital assets, while continuing to caution clients about the sector’s high volatility.

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