Lesson 9.5 · 5 of 5 · Crypto without illusions
How much to invest in crypto: bitcoin volatility and position size
Bitcoin was about 5.5 times as volatile as the S&P 500 from November 2016 to June 2022, and since 2017 it has fallen by more than 75% from a peak twice. A small holding limits the damage: with 5% of your money in crypto, an 80% fall costs the portfolio 4%. Regulators in the UK and the EU warn that you could lose everything you put in.
Terms in this lesson
- Volatility
- How much the price usually goes up and down in a year.
- Maximum drawdown
- The largest fall in price from a peak to the lowest point after it.
- Rebalancing
- You bring your portfolio back to its target percentages, selling what rose and buying what lagged.
How volatile is bitcoin compared with shares?
Volatility measures how far returns stray from their average. We worked it out from 68 monthly returns, November 2016 to June 2022, using closing prices on the last day of each month: bitcoin on Coinbase and the S&P 500 index as published by FRED (excluding dividends). The standard deviation of the monthly returns, multiplied by √12, gives the yearly figure. Bitcoin had 6 months with falls of more than 20%; the S&P 500 had just one month below -10%. The period is the one for which we verified both monthly series; other periods give different numbers.
Two lines starting from 100, over the days in roughly the last three months when both traded: bitcoin and the S&P 500 index. The bitcoin line swings much more widely than the index. The data update daily.
| Year | Bitcoin | S&P 500 with dividends |
|---|---|---|
| 2016 | +126% | +11.8% |
| 2017 | +1,324% | +21.6% |
| 2018 | -73% | -4.2% |
| 2019 | +94% | +31.2% |
| 2020 | +305% | +18.0% |
| 2021 | +59% | +28.5% |
| 2022 | -64% | -18.0% |
| 2023 | +156% | +26.1% |
| 2024 | +121% | +24.9% |
| 2025 | -6% | +17.8% |
Bitcoin: closing price on 31 December (UTC) on Coinbase, in dollars; 2017, for example, runs from $973.37 (31 Dec 2016) to $13,863.13 (31 Dec 2017). A one-year return depends heavily on the day chosen. S&P 500 with dividends: Aswath Damodaran’s dataset (NYU Stern, updated 5 January 2026).
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Create a free accountWhat a 70-80% fall means for your portfolio
Illustrative calculation
How much does a £50,000 portfolio lose if its crypto slice falls by 80% and everything else stays put?
£400 with 1% in crypto, £2,000 with 5%, £4,000 with 10%.
The sum is simple: the crypto slice × the fall. With a 70% fall, the losses would be £350, £1,750 and £3,500. The example is not a recommendation, and to show the effect it assumes shares and everything else stand still. In reality, shares fell too in 2022.
Loss on the whole portfolio when the crypto slice falls by 80%.
A small slice does not stay small on its own, though. If crypto rises a lot, its share grows, and the risk grows with it. That is why many people set a limit and bring the slice back to it, just as with rebalancing.
What the FCA and the EU supervisors say about crypto risk
- FCA (UK)Crypto is high risk and speculative as an investment, and you should be prepared to lose all your money. It is highly unlikely you will be covered by the Financial Services Compensation Scheme.
- ESMA, EBA, EIOPA, 17 March 2022The three EU supervisors wrote that many crypto-assets are highly risky and speculative, unsuited to most retail consumers as an investment or a means of payment, and that there is a very real possibility of losing all the money invested.
- Updated warning, 6 October 2025After MiCA came in: you may lose a lot, or even all, of your money; prices can fall and rise quickly; you will not benefit from compensation schemes; check the firm is on the ESMA register.
- What they ask of peopleTo learn how a product works before investing, to weigh whether the risks are worth taking given their own goals and finances, and to keep their private keys safe.
How to decide your crypto slice, without a formula
There is no percentage that suits everyone, and we will not give you one. But there are questions worth answering, in writing, before you buy:
- What amount could you lose completely without changing your life or your plans? Regulators start from exactly that scenario.
- When will you need the money? Money for a car or a house deposit in 1-3 years does not sit well in an asset that lost 77% in about a year.
- What will you do after a big rise? A written limit (for example, bringing the slice back to your chosen level once a year) saves you from decisions made in euphoria.
- What will you do after an 80% fall? If the honest answer is “sell everything”, the amount may be too big for you.
- Borrowed money? With credit or leverage, a big fall can leave you with debts, not just losses.
Lessons are educational. They are not a recommendation to buy or sell. Investing involves risk and you can lose money. Sources: daily closing prices (UTC) for bitcoin on Coinbase Exchange and the S&P 500 index from FRED (S&P Dow Jones Indices), month-ends from October 2016 to June 2022, accessed on 29 October 2026, with our calculations (standard deviation of monthly returns × √12), spot-checked against FRED’s CBBTCUSD series; annual S&P 500 returns with dividends from Aswath Damodaran’s dataset (NYU Stern, updated 5 January 2026); FCA, “Cryptoassets” for consumers (updated 29 January 2026); ESMA, EBA and EIOPA, warning of 17 March 2022 and updated warning of 6 October 2025. The 1%, 5% and 10% calculations are illustrative, not recommendations.