Crypto portfolio diversification depends on sizing, analysts say

A new Urban Institute report says crypto portfolio diversification is the leading reason U.S. investors hold digital assets, with 45% of crypto owners citing it as their main motive. Financial advisors and market analysts told CNBC that crypto can reduce reliance on stocks and bonds in some portfolios, but its volatility and changing correlation with equities can also raise overall risk.

The Urban Institute, a think tank, surveyed 3,194 U.S. adults in January. It defined crypto owners as people who reported holding bitcoin, ethereum, solana, XRP, stablecoins, memecoins or other digital coins.

Diversification ranked ahead of other reasons for owning crypto in the survey. Urban said 27% of crypto investors cited a belief that crypto is the future, 11% said they expected higher returns than from other investments, and 5% said distrust of the U.S. dollar was their main reason.

Dan Cassino, a Fairleigh Dickinson University political science professor and author of a book on cryptocurrency culture, told CNBC that wider integration into mainstream markets is separating crypto from the anti-establishment identity associated with some early adopters. Douglas Boneparth, a certified financial planner and founder of Bone Fide Wealth in New York, said the shift toward portfolio construction suggests a more mature investor rationale, while adding that results depend on execution.

Does crypto diversify a portfolio?

Diversification means holding assets that do not move in lockstep, so weakness in one part of a portfolio may be offset by steadier or stronger performance elsewhere. Correlation measures that relationship: a reading of 1 means two assets move together, zero means no relationship, and a negative reading means they tend to move in opposite directions.

Veronica Willis, a senior investment strategist on the asset allocation team at Wells Fargo Investment Institute, told CNBC that bonds have had a 0.02 correlation with the S&P 500 over the past decade. Digital assets had a 0.2 correlation with the index over the same period, according to Willis, higher than bonds but still low by that measure.

Jim Ferraioli, director of crypto research and strategy at the Schwab Center for Financial Research, told CNBC that cryptocurrency can complement traditional holdings over longer periods because it has tended to behave differently from conventional assets. Boneparth said bitcoin, in particular, has shown a return pattern distinct from stocks and bonds over long horizons.

Why crypto may fail as a hedge in sell-offs

Advisors cautioned that crypto’s diversification value can weaken during periods of market stress. Boneparth told CNBC that correlations between bitcoin and equities often rise when investors sell liquid assets during sharp downturns.

Willis described digital assets as a hybrid between diversifying assets and growth assets. Growth assets can offer higher return potential but also carry higher risk, and Willis said crypto can be grouped with other risk-on holdings when investors become more cautious.

Morningstar portfolio strategist Amy Arnott made a similar point in a May 2025 analysis cited by CNBC. Arnott wrote that major cryptocurrencies had correlations below 0.4 against stocks, bonds, real estate, gold, commodities and other asset types over the 10 years through April 30, 2025. Over the trailing three years through April 2025, however, bitcoin’s correlation with U.S. stocks rose to 0.55, after being near zero or below zero in some earlier periods, according to Arnott.

How much crypto did advisors discuss?

Position size was a central caveat in the CNBC report. Many financial advisors cited in the report said a 1% to 2% allocation to digital assets can be appropriate in some portfolios. Boneparth said that above 5%, bitcoin’s volatility can start to drive a portfolio’s overall risk profile rather than act as a diversifier.

Willis told CNBC she generally points to a roughly 2% to 3% crypto allocation, mainly for investors seeking growth rather than income or lower-risk exposure. She said smaller allocations can limit the effect of volatility, while noting that digital assets remain highly volatile even when used as a long-term diversifier.

This story draws on original reporting from CNBC.