The 2% figure was nothing but a guess. I wrote at the time that if someone chose 0.5% or 5% or anything in between, I had no strong counter—but I thought zero or more than 5% were difficult to defend. Today, crypto is about 3% of total global equity value, so I’ve been selling into this rally. But someone who sees a bigger future for crypto might find it fairly priced, or even undervalued.
The third major valuation approach to crypto is as an alternative to the traditional financial system. From this perspective, crypto is worth $3 trillion because dollars are less solid than they used to be, not because crypto has developed better than expected. Having a solid presence in the crypto universe has obvious appeal looking at the world today, with the economy having severe problems restarting, worrying geopolitical events, politics and governments seeming dysfunctional, U.S. threats of financial repression and confiscation of assets and ultra-loose monetary and fiscal policy in the U.S. and elsewhere despite faster inflation.
My personal strategy is to keep 2% allocated to crypto without worrying about valuation. But there is a case for optimists that crypto can go up from here, even relative to big tech companies in general, by continuing to develop ideas and deliver useful services to end users. And there’s a case for pessimists that high traditional asset valuations and shaky traditional currencies and financial institutions make crypto worth its high prices. I have no idea if today is peak crypto for this market cycle, but it does seem to be a particularly bad time to be either over or under exposed to it.
Aaron Brown is a former managing director and head of financial market research at AQR Capital Management. He is the author of The Poker Face of Wall Street. He may have a stake in the areas he writes about.