Ignore Coinbase’s 5% Rule at Your Peril — But Banks Want It Lower
Why everyone’s squabbling over “5%”
There’s a fight in finance that sounds like a bad bar argument: crypto bosses say 5% of your net worth in Bitcoin is the safety-net minimum, while big banks and wealth managers quietly recommend keeping your crypto slice under 5% of your portfolio. Same number, wildly different math. Cue the confusion.
What changed is simple — Bitcoin got easier for ordinary investors to own after spot ETFs showed up. That opened the floodgates for advisors and compliance teams to stop dodging client questions and start asking a new one: “How much should we actually allow?” That’s where risk models and legal checklists took over, and those models tend to prefer tiny, defensible crypto sleeves over headline-grabbing bets.
Banks and large wealth shops aren’t being stingy because they don’t like fun. They’re being literal: Bitcoin’s volatility and historic drawdowns mean even a modest-looking allocation can balloon into a massive risk contribution if you don’t rebalance. So firms set caps — often in the low single digits — to keep the wild swings from wrecking a client’s retirement plan or a poor advisor’s career.
How this affects your money (and sanity)
The real rub is the denominator. Saying “5% of net worth” is not the same as “5% of your investable portfolio.” Net worth often counts houses, pensions, businesses — assets you can’t just sell and buy crypto with. If your net worth is $2 million but your investable cash is $500,000, that 5% net-worth suggestion suddenly translates to a 20% crypto weight in the stuff you actually trade. That’s a totally different animal.
Why does that matter? Because advisors run stress tests. They think in volatility, drawdowns and rebalancing rules. A 3% starting sleeve can become 10% after a rally, and then stomach-churning when the market corrects. So model portfolios tend to look like this in practice: near-zero for conservative clients, low single digits for balanced clients, and maybe a slightly larger but still cautious bite for aggressive profiles.
On the other side, crypto executives are selling regret insurance: miss out now and you might hate yourself later if Bitcoin rockets. That’s a persuasive emotional pitch, and it gains traction as more mainstream fund managers let clients buy Bitcoin through normal channels — suddenly “I couldn’t access it” no longer cuts it.
The result is a weird détente. “5%” becomes a Rorschach blot: risk managers use it as a ceiling, evangelists use it as a floor. Both are solving different problems — one is about limiting portfolio damage, the other about avoiding FOMO — and both can be true at the same time.
If you want practical next steps without the drama: figure out your denominator first (net worth vs investable assets), decide how much of your liquid portfolio you can actually lose without losing sleep, and force a rebalancing plan so your tiny crypto bet doesn’t accidentally become the biggest thing you own. And yes, ask your advisor what their guardrails are — they’re probably following them for a reason.
This isn’t investment advice — just a friendly nudge to think about percentages like a human, not a headline.