1.2 Things to consider when picking a cryptoasset
Choosing cryptoassets: things to consider
What you will understand after this chapter
- How some people structure a simple example portfolio using assets such as Bitcoin, Ethereum and tokenised gold, and what trade‑offs they consider (risk, volatility, concentration), rather than how you personally “should” invest.
- General approaches to diversification, and why adding more coins or altcoins does not remove the high risk nature of cryptoassets.
- Practical risk points for beginners, including starting with small amounts, only using money you can afford to lose, and recognising that crypto prices can move sharply.
This chapter is for information only. It does not provide personal recommendations or advice about what you should buy.
Understanding your options
Bitcoin (BTC) is the first and largest cryptoasset by market capitalisation and is often described as “digital gold”, but it is still highly volatile and can lose significant value.
Ethereum (ETH) supports smart contracts and decentralised applications, offering different use‑cases but also different risks compared with Bitcoin.
Beyond these, there are thousands of other cryptoassets (“altcoins”), ranging from larger projects like Solana (SOL) to new, untested tokens. Many altcoins have higher volatility, less transparency and a greater risk of loss.
Example portfolio splits (not a recommendation)
Some people illustrate how a simple portfolio might look using a small number of larger, more established cryptoassets and, in some cases, a gold‑backed token.
For example, one illustrative mix might allocate the majority to Bitcoin, a smaller portion to Ethereum, and a portion to a token linked to gold.
This is just an example to explain concepts such as concentration, correlation and diversification; it is not a “low‑risk” option, and even these assets can be extremely volatile.
You should not treat any model split as a statement that it is “smart”, “safe” or suitable for you.
Why complex portfolios can increase risk
Holding many different coins can be harder to monitor and may expose you to more speculative projects that could quickly lose most or all of their value.
Spreading small amounts across many highly speculative tokens is not the same as diversified investing in traditional markets and can increase the chance of large losses.
Avoid making decisions based on social‑media hype, You Only Live Once “YOLO” trades or Fear Of Missing Out “FOMO” which the FCA has repeatedly warned can lead to poor outcomes in high risk investments.
Diversification approaches (with caution)
Some investors who already hold Bitcoin and Ethereum choose to add a small number of additional cryptoassets they have researched in depth.
Others may hold a limited amount of regulated stablecoins or tokenised gold to reduce volatility in part of their crypto holdings, but these remain high risk and are not risk‑free cash substitutes.
Index style products that track baskets of cryptoassets (for example, “top 10” or “top 100” indices) spread exposure across many coins but still carry the full risks of the underlying crypto market.
Diversification can help spread risk but does not guarantee profits or protect against loss, especially in a market as volatile as crypto.
Cryptoassets beginners should be especially cautious about
You should be particularly careful with:
- Very new, low market‑cap tokens with limited track records or information
- Tokens on decentralised exchanges that have the same or similar names as well known coins; always check you are interacting with the genuine, verified contract
- Memecoins and highly speculative tokens pushed on social media or via “pump and dump” schemes
- Projects with anonymous teams, no audits, or vague/unclear documentation
- Any coin or platform promising guaranteed or unusually high returns
Scepticism and careful research are essential when dealing with any high risk investment, including cryptoassets.
Key risk points and behaviour
Because cryptoassets are high risk, many people who decide to invest start with small amounts they can afford to lose completely.
Prices can move sharply up or down in short periods; this volatility is a major risk factor and should not be treated as “normal” or always temporary.
Trying to time markets, quickly banking profits, or “buying back lower” is a trading strategy that can increase complexity and risk, and there is no guarantee it will improve outcomes.
Focus on understanding your own risk tolerance, financial situation and objectives, and consider taking independent financial advice if you are unsure.
Cryptoassets are high risk investments and you could lose all the money you put in; you are unlikely to have access to UK regulatory protections if things go wrong.
Only invest money you can afford to lose and make sure you understand the risks before you decide to buy.
FCA Registered Cryptoasset Exchanges
Cryptoassets are high-risk and unregulated; verify on FCA register.
Crypto.com
Buy, sell and trade crypto in GBP; optional DeFi wallet, 140M+ users worldwide.
Bitpanda
Multi-asset investing: crypto, stocks, ETFs, metals and commodities in one app.