A growing number of people today have cryptocurrencies of various forms in their investment portfolio. Given the rise in prices of cryptocurrencies, these have begun to form a sizable part of many portfolios.

Whether you bought these for speculation or are a long term HODLer, creating a plan for managing investments in crypto assets is critical.

Key to this is understanding how crypto assets fit in an investment portfolio. To do this, let’s agree on some basic structural information.

First, crypto assets are volatile (even if the extent relative to some others is debatable). This means they tend to see substantial movements in prices – up and down.

Second, they are currently unregulated in most countries. Which means you don’t get regulatory protections for fraud or loss, similar to a deposit held in a bank, or an investment in a share or bond. In addition, some countries have chosen to ban access to crypto tokens, or are bringing regulatory actions against key issuers and operators. This creates additional risk.

Third, the technology to manage crypto assets is still evolving. Yes, you can choose to manage your own keys or use a number of ‘crypto custodians’, but the technology, process, and companies involved are far from maturity. This means that you should expect a certain risk of loss due to cyber fraud.

These three should be sufficient to indicate that risks in crypto assets are no small deal.

However, all investments trade-off risks against returns. For those willing to take the risks and manage these, crypto could help boost returns in portfolios. But recognise that it is no game for the faint hearted. And neither is it a get-rich-quick scheme.

If at all, crypto assets are similar to, what many in the investment community call, alternate investments. Investments like art, real estate, gold, and venture capital – that have higher risks than normal, but if managed properly over a long duration, could add returns to a portfolio.

Identifying the right share of crypto in a portfolio is a personal choice, based on your risk appetite. But whether it is 0.1% or 100%, it needs to be consciously thought about and periodically tracked. Currently, there are no proper aggregators that bring together traditional assets and crypto, but this could change in future. Meantime, a simple excel sheet is probably the best mechanism to track.

Next, a number of people lend out crypto for returns, or borrow it to build some leverage. These models come with their own additional risks. These could include the inability to get back your invested capital and price movements due to volatility that could expose you to huge risks. So do take due care. Use yield tracking tools like InstaDapp, DeBank or Zapper to track returns and risks across protocols.

Finally, taxation and accounting requirements are currently an evolving minefield across countries. In places like the UK, the guidance is clear that all exchanges between crypto assets and to/from real money needs to be tracked for capital gains and associated taxation paid. Use tools like koinly, tokentax or taxbit if you have large and complex trade portfolio to manage.

In sum, recognise the crypto needs to be treated like its own asset class. So use the basic financial principles of tracking allocation to the class, selecting investments prudently and managing its risks carefully.