The Case for Owning Just 1 Cryptocurrency -- and Which One It Should Be

Some investors who dabble in cryptocurrency end up with a portfolio like a home refrigerator that hasn't been cleaned in a long time. It'll have questionable leftovers of old tokens which were once exciting, a bunch of inert condiment-like altcoins that never did much of anything but which technically haven't expired yet, and assorted debris that looks regrettable in hindsight. There's nothing wrong with variety or diversification, but the truth is that for many investors, it's much more profitable to buy one specific coin and hold it forever.

If you're going to hold just one crypto, the case overwhelmingly favors Bitcoin (CRYPTO: BTC) as being that one specific coin. Here's why.

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A small allocation can have a disproportionate effect

There are many arguments to make in favor of buying Bitcoin. The simplest argument for buying only Bitcoin is that institutional research suggests it's an easy way to improve your portfolio's performance without taking on significantly more risk.

For example, Fidelity Digital Assets published a study on March 25 examining what happens when you add Bitcoin to a standard 60/40 portfolio of stocks and bonds over a 10-year lookback period. According to that research, a traditionally diversified portfolio's return was 24% by adding an allocation of Bitcoin worth up to 10%. With an allocation of just 5%, a portfolio's annualized returns were 17.5%. A portfolio without any of the coin had annualized returns of around 9.4%, though it was also slightly less volatile and also had a slightly more favorable maximum drawdown level.

Research by BlackRock from late 2024 also supports the idea that a 1% to 2% allocation to Bitcoin can give portfolios significant exposure to upside, and at a manageable level of downside risk. A slightly earlier investigation by Grayscale suggests that the sweet spot for Bitcoin allocation is roughly 5% of a portfolio's value for maximizing its risk-adjusted returns.

Other cryptocurrencies don't have the same value proposition

You don't need much Bitcoin to shift a portfolio's return profile meaningfully. That means that if it's the only crypto you buy, you'll be exposed to the upside you're likely looking for, and you won't need to worry about researching or holding other cryptocurrencies.

Even if you did think about buying other cryptoassets, it's important to notice that they don't offer the same features to a portfolio as Bitcoin does. Cryptos like Ethereum and XRP both have strong investment theses, but neither one has the elegant simplicity of Bitcoin's tightly constrained supply policy, nor do they have the luxury of being scarce stores of value. While they might grow faster, they need to constantly change and compete with alternative investments in the crypto sector in a way that Bitcoin simply doesn't.

So if you're going to be a one-crypto investor, make sure it's Bitcoin.

Alex Carchidi has positions in Bitcoin and Ethereum. The Motley Fool has positions in and recommends Bitcoin, Ethereum, and XRP. The Motley Fool recommends BlackRock. The Motley Fool has a disclosure policy.