How Much Bitcoin Should A Beginner Buy?

There are a lot of questions when you first discover bitcoin, but one of the big ones is how much bitcoin should a beginner buy? It’s a tough question to answer without knowing more about your financial setup and your personal goals, but I’ll attempt to give you some guidelines here in this article. Keep in mind, I’m not a financial advisor of any kind, and these are just my thoughts on how I’d advise my own family if they were to ask me the same question.

How much bitcoin you should buy is a personal choice, and you’ll need to take personal responsibility that decision. If you learn one thing in bitcoin, it’s that you need to make decisions for yourself and then own the rewards or consequences of those actions. That’s why education is so important, so you can make good decisions.

Because every person reading this article is in a different financial situation, I can’t recommend specific amounts of bitcoin to buy. 1 BTC could be a lot, or a little. 0.1 could be a lot or a little. (This is where the personal responsibility parts comes in on your part).

So to demonstrate how much bitcoin a beginner should buy I’ve divided the allocations into mindsets and percentages rather than specific amounts.

A millionaire can still get rekt buying buying at the top of a bull market then selling during the depths of a bear market. A blue collar worker humbly stacking sats can still double, triple, or 10x their net worth over a decade. It’s all relative.

It doesn’t matter if you have 10 bitcoin or 1 bitcoin or 0.1 bitcoin. What matters is how much bitcoin you own compared to other types of wealth you own, whether that be a home, a business, cash, stocks, etc.

Focus on yourself and how to improve your own financial situation, and let go of the idea that you wish you bought bitcoin in 2010.

How Much Bitcoin Should A Beginner Buy?

Bitcoin Investor Mindset: Scared

If you are freaked out by the idea of buying bitcoin but you want a little bit just in case it does 10x and you don’t want to miss out again, then just size your allocation in the smallest way possible. When your allocation is sized as small as your conviction, you’ll be less likely to panic if the price drops 10% the day after you buy.

Just be aware that there are some risks associated with sizing your allocation too small. With a tiny allocation to bitcoin, when the price starts to move, you’ll likely experience FOMO and want to add more to your allocation. These are major bull market vibes, and everyone experiences them. Your conviction in bitcoin will is likely to massively increase as the price starts to run.

Also, if it does 10x or 100x, you’re going to be mad at yourself for not buying more.

What would be considered a “small” allocation?

I would say that putting 1% up to 10% of liquid cash into bitcoin is quite a small amount. This means you aren’t even looking at the value of your investments, assuming you have some. You’re just looking at cash in the bank.

Would you be financially crushed by losing 10% of your checking account? Would you be absolutely depressed to lose 1% of your savings account? Probably not. This is the mindset to get in because if you see bitcoin crash 30% in a day or 80% over a year, you will not be tempted to sell at a loss.

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Bitcoin Investor Mindset: Unsure

If you get the basic idea of bitcoin and want to have some kind of exposure to it to lock in potentially astronomical returns as it gains adoption, then you should start looking at bitcoin as a part of your investment portfolio. Bitcoin is no longer a what if type of bet. It’s a how much and how long type of bet.

1% of investments is still a very small allocation, and reflects a pretty conservative portfolio. If you have a standard 60/40 portfolio, then putting 1% of that into bitcoin will allow you to capture the upside with minimal downside.

Even so-called “safe investments” use the strategy of allocating some amount of money to high risk investments. For example, California’s pension fund pension fund CalPers fund bought RIOT’s bitcoin mining stock. In other words, you can still own some bitcoin in your portfolio and be as conservative as pension funds.

Bitcoin Investor Mindset: Excited

If you understand asset allocation and want to get into bitcoin in a bigger way, then I think 10% of investments in bitcoin is a good number to start with for beginners. As an investor, what this says is that you are a big believer in the bitcoin narrative, but understand that it’s a very volatile investment.

For the conservative investor, 10% allocation to any one specific asset is quite large, so you are definitely adding a good amount of risk to your portfolio. However, you can still sleep at night knowing that 90% of your other investments are in traditional assets.

How you measure your total investment value can also vary based on your conviction and risk tolerance.

For example, if you own a large amount of equity in your home, you may or may not count that in your calculation. You may choose to only do 10% of liquid asset values like stocks, or you may do 10% of total net asset value and include home equity.

If your home is worth $500,000 and you have $100,000 equity, plus $100,000 invested in stocks and a $20,000 rainy day fund in cash, a 10% bitcoin allocation could look a few different ways.

Bitcoin Investor Mindset: ALL IN!

For beginners investing in bitcoin, all in shouldn’t really mean all in in my opinion. Selling everything and trading it for bitcoin is not really a smart decision unless you’ve put in at least 100 hours of research (or maybe 10,000 hours) into bitcoin. Sure, it can be very exciting to discover bitcoin, but it can be an absolute gut punch to see your total net worth plunge 90% (speaking from experience).

Do yourself a favor, hack your own mind a little bit, and picture yourself during a bear market. How much pain can you actually endure?

50% of total net worth is quite a lot. It’s a massive bet on bitcoin, and it’s wayyyyyyyyy more bitcoin than 99% of people on the Earth own.

Of course, there are many bitcoiners who have 100% their net worth in bitcoin. These are people who have been studying bitcoin for many years have a stable source of income. These folks denominate their net worth in bitcoin. So as long as they end up with more bitcoin than the previous year, they are happy.

Just be aware that there are a lot of LARPs on social media. You may hear from so-called experts that the collapse of fiat is imminent, or that bitcoin will hit $1,000,000 in 90 days, but take these predictions with a grain of salt.

Be sure to find an allocation that fits your financial situation and conviction in bitcoin. Don’t end up like Bitcoin TINA who preached for years that There Is No Alternative (T.I.N.A), and then sold 50% of his bitcoin at the pico bottom of the 2022 bear market for US treasuries LOL.

There are tons of LARPs in the bitcoin space who will tell you to go all in or you’re a pussy, but they are doing it for social media clout. Don’t forget that things can get real dark, real quick in bitcoin, so if you aren’t mentally and financially prepared for an extended price downturn, you might end up like Bitcoin TINA.

Find a balance that works for you.

Video: How Much Bitcoin Should You Own? | Best Bitcoin Allocation

A interesting video from a non-bitcoin focused investment channel on a few different ideas for how to size your bitcoin allocation. The only real “model” is #1, but the other three are interesting opinions to consider. Ignore his shill for BlockFi in the beginning, as BlockFi is now bankrupt.

1. Black-Litterman model (1:16)
2. Based off of population (4:07)
3. Narrators opinion (5:38)

To summarize the narrator’s opinion, it’s basically that you should size your bitcoin allocation based on your confidence that “the system” will exist and be dominant in the future. If you think that legacy finance will persist and bitcoin will remain “niche”, then size your allocation based on the percentage you think bitcoin will take up of the economy.

If you think that bitcoin will become the dominant store of value, then size up. If you think bitcoin will completely overtake global commerce, then size up.

So what role do you think bitcoin will play in 10, 20, or 30 years in the future?

Stacking Bitcoin Over Time

You Will Never Make A Perfect Buy

One of the biggest lessons I learned as a beginner buying bitcoin is that you’ll never make “perfect” buy. You’ll always miss the bottom by a little bit, and you’ll never buy enough during the bear market. You’ll always get caught up in bull market energy, and spend some years with with some coins in the red.

Don’t beat yourself up over it.

This is the philosophy of stacking sats. Since you can’t time the market, just buy at any point and eventually you’ll have all your bases covered. Change your unit of account to bitcoin, and you’ll always be “up” in terms of how much bitcoin you own. If you denominate your returns in USD you’ll drive yourself nuts over 3 years worrying about your bitcoin position being down 80%.

I finally let go of the idea that I’d be able to buy the perfect bottom and sell the perfect top, and it has helped me be comfortable with my bitcoin position.

In 10 Years Today’s Price Won’t Matter

When you consider what the price of bitcoin could be in 10 years, it probably won’t matter at what price you buy bitcoin today. Think about 10 years ago – would you care if you bought at $100 or $200? Likely not.

So when bitcoin is $500,000 or even $1,000,000, will you care if you bought at $28k or $30k? Likely not.

Of course, those prices are not guaranteed to happen, so this is just a mental exercise. The point is that if you are a bitcoin bull and want to hold the asset for many years into the future, then you shouldn’t really be micromanaging what price you enter. That’s a trader mentality, and most traders get rekt gambling in the market.

What Do The Pros Have To Say About Bitcoin Portfolio Allocation?

Institutional investors are buying bitcoin already, and there are even some reputable names you’d recognize who recommend bitcoin as part of your asset allocation. Notably, they recommend bitcoin only, although there are a variety of lesser-known funds which recommend a basket of cryptocurrencies.

Let’s just look at the bitcoin stuff.

Fidelity On A 3% Allocation

First off, from Fidelity (Jan 2023).

The report itself is pretty short, and easy to read, but I’ll summarize the main ideas here. Basically, bitcoin as returned about 186% yearly, but with a lot of volatility. From 2018 to 2023, that number is 8.8%.

It’s possible to introduce bitcoin into a standard portfolio to captures those returns, without increasing the volatility of your desired risk profile.

The following numbers are assuming a 3% allocation to bitcoin:

For an aggressive 80/20 (stocks/bonds) portfolio to main its same risk profile, you’d need to earn just 10% return on bitcoin. For a risk-averse 40/60 (bonds/stocks) portfolio, bitcoin would need to return 30%.

Fidelity isn’t the only big name recommending that you add bitcoin to your portfolio.

JP Morgan And Yale Recommend 1%

Even JPMorgan, headed by the infamous Jamie Dimon who notoriously hates bitcoin and think it’s worthless is recommending up to 1% allocation to bitcoin for their clients. A study from Yale agrees.

The premise of both of these recommendations is similar to that of Fidelity, and relies on the idea that you can add a very small percentage of bitcoin to your portfolio to increase your chance of upside by a few percentage points, while minimizing downside risk.

The chance of bitcoin going to zero at this point is pretty much silly, so you have to consider what the future world will look like where everyone starts to realize this. When everyone beings to add bitcoin to their own portfolio, that’s the beginning of broader bitcoin adoption. If everyone who is currently invested in equities took just 1% of their stock portfolio and put it into BTC, it would massively move the price over the coming decade.

Do you want to have a bitcoin position before the crowds come en mass to enter a bitcoin position, or do you want to wait until it’s common knowledge to do so?

There Is No Such Thing As A Diversified Crypto Portfolio

When you start looking at portfolio construction, you will likely naturally think about how to diversify in other types of crypto. There’s over 20,000 different coins, so you may think it’s smart to do something like 90% allocation to bitcoin, then 10% of your “crypto portfolio” to altcoins.

This is not something I recommend for a couple of very clear reasons.

1. Altcoins Move Together

The entire crypto market, including bitcoin, moves together during broader bull and bear markets. Broader market movements are lead by bitcoin. There are no altcoins who have their own price trajectory because they have no utility other than trading with other speculators.

While there are some altcoins which outperform bitcoin during bull runs, they underperform during bear markets.

When priced in bitcoin, there are no altcoins which have topped a previous all-time high in subsequent bull market. That means if an alt hits an ATH versus bitcoin in one bull market, you can bet that it will not reach that price again.

If you are a long term investor, the numbers say that you should only ever hold bitcoin. Of course, traders can play the market and get lucky, but we are not talking about trading. We are talking about investing, and “investing” implies that you have a long term investment strategy.

2. The “Top Alts” Change Every Year

A common, albeit flawed strategy to figure out what altcoins to invest in typically revolves around choosing a few of the top 10 altcoins. They’re in the top 10 by market cap, so they must be doing something right – right?

The trouble with this strategy is the top altcoins change all the time. Every bull cycle there is a new round of hot new coins to invest in, so previous coins that did 1000% are highly likely to NOT be favored in the next cycle.

Just look at Litecoin and XRP’s performance in 2017 versus 2021. They came nowhere near the performance of the top coins of the 2021 cycle, like Cardano and Solana. Whenever the next bull cycle comes around, you can bet that there will be a new narrative, and new coins to pump.

This tells us two things.

• it’s impossible to predict which coins will outperform bitcoin next round
• consistently picking winners, including entry/exit points is a moonshot

Furthermore, this is all a distraction from the fundamental reality that none of these altcoins will be relevant in five or ten years, so “investing” in them is not worth considering. The folks making money form altcoins are active traders getting in during price increases, and dumping their bags before the price drops.

So How Much Bitcoin Should You Actually Buy?

Before you decide how much money you want to invest in bitcoin, you need to decide how much you believe that bitcoin can succeed. If you don’t actually know anything about bitcoin, you may end up selling all your bitcoin at the first sign of a bear market! The first step is learning why bitcoin has value.

That being said, you may want to get some skin in the game and then start your education process. In that case, I think it’s reasonable to use the basic guidelines outlined by some of the big investment companies highlighted here, namely 1-10% allocation depending on your risk tolerance. Generally speaking, I think most bitcoin bulls would think this is a reasonable way to start your journey investing in bitcoin.

Using the 1-10% rule, you’ll be stacking a decent amount of bitcoin if you remain consistent. You can increase or decrease that percentage based on what you learn and your level of conviction.

If you have a high risk tolerance, a basic understanding of how bitcoin works, and are familiar with some of the popular valuation models for bitcoin, then the sky is the limit for how much to invest into bitcoin. Many bitcoiners have discovered that the downsides to traditional investments such as stocks, real estate, and precious metals outweigh the benefits and have converted the majority of their portfolio into bitcoin.

What role will bitcoin play in your investment portfolio, and how do you think bitcoin will fit into the world of the future?