Everyone Has Crypto FOMO, but Does It Belong in Your Portfolio?

A growing array of investment options make it easier to put digital tokens alongside traditional investments. Here’s what to know. Rob Donnelly Larry David travels through the ages, pooh-poohing many of the world’s greatest innovations — indoor plumbing, the dishwasher and, lastly, cryptocurrency. “Don’t be like Larry,” the Super Bowl commercial urges. “Don’t miss out on the next big thing.”

The presence of a boomer comedian pitchman, though, is just the latest sign that crypto has left behind its bleeding-edge roots . Institutional investors are pouring billions into digital tokens, athletes and mayors are taking part of their salaries in cryptocoins, and you may have already run into a Bitcoin A.T.M. at your grocery store.

And then there are Bitcoin’s FOMO-inspiring, albeit insanely volatile, price movements: After peaking near $69,000 on Nov. 9, it was recently trading at about $39,300 — still almost five times its value in March 2020, according to Coinbase.

It’s challenging for a casual observer to disentangle the hype from any true potential, and yet it’s also hard to shake that feeling: Are digital tokens worthy of a spot in my portfolio? Are they even a viable asset class at all?

There are conflicting signals: The White House is moving toward developing a policy approach to crypto, but federal regulators overseeing workplace retirement plans all but banned it from those most sacred of accounts.

Even so, a growing share of steely buy-and-hold investors are being tempted. In a recent Bitwise/ETF Trends survey of financial advisers — who tend to be hired by the non-YOLO set — 16 percent said they had allocated crypto to their clients’ portfolios in 2021, up from 9 percent in 2020.

That’s not surprising: There are more ways in than ever.

It has been easy enough to open a basic account to buy cryptocurrency on the big trading platforms like Coinbase or Gemini, and it’s even possible through apps like PayPal or Venmo. But crypto is trickling deeper into traditional investment realms: Several Bitcoin-linked exchange-traded funds hit the market in 2021, making it possible to just click “buy” in any brokerage account. Just last month, Betterment — an established roboadviser known for managing staid portfolios of cheap but reliable index-related funds — bought a firm that provides baskets of cryptocurrencies and related assets.

And there’s a steady beat of developments: BlackRock and Charles Schwab recently filed to register funds that track the crypto economy, while other providers continue to lobby regulators to let them unleash more products.

But even digital currency evangelists admit that investing in Bitcoin and its brethren remains a largely speculative bet on an unknown future.

“This is a fast-moving market, and it’s hard to know where it will go,” said Matt Hougan, the chief investment officer at Bitwise Asset Management, which has $1.3 billion under management in roughly a dozen crypto-related funds .

Cryptocurrencies and their blockchains — the open and communally maintained electronic ledgers that record transactions — have potential that we don’t fully understand, Mr. Hougan said. Think of it like trying to guess the internet’s future in the early 1990s.

“The internet clearly represented a new way to distribute information and could have major consequences,” he wrote in a report. “But moving from that to predicting that people would, for example, regularly use smartphones to rent out a stranger’s house rather than staying in a hotel is a whole different matter.”

As enticing as it is to think you’re getting in on the next Google, it’s worth remembering that the dot-com boom went bust. Even Mr. Hougan believes regular investors should tread carefully when deciding how much of their portfolio to commit.

“Above 5 percent, it becomes the driver of the most painful drops in your portfolio,” he said. “It becomes very risky.”

The curious do not lack for choice. There are nearly 9,700 coins and tokens collectively valued at $1.9 trillion, according to CoinMarketCap , which tallies coins that meet certain minimum criteria. Bitcoin, which has been around for 13 years and is now legal tender in El Salvador , accounts for roughly 42 percent of that value. Ether, which has been around since 2015 and has more sophisticated abilities that allow it to be used in payroll and other arrangements, is roughly 18 percent.

Fidelity, which is better known for its giant 401(k) business but now has an arm dedicated to holding crypto for institutional investors, believes Bitcoin should be viewed separately from the rest of the pack, with potential as an alternative currency or store of value, like gold .

“It just makes sense as an entry point […]

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