The mathematics of loss is unforgiving. A portfolio that falls 50% must rise 100% to recover. A fall of 80% requires a fivefold gain. In an asset class capable of such moves, the first objective of risk management is not to maximise return — it is to ensure the portfolio survives to compound.
What is position sizing?
Position sizing is the discipline of limiting how much risk any single asset may contribute to a portfolio. In volatile markets it targets a constant volatility contribution rather than a fixed capital weight — trimming positions as assets grow more volatile — so the portfolio survives drawdowns and stays in the game to compound.
Position limits as a constitution
We treat position limits as constitutional rather than discretionary. No single asset, however compelling the thesis, may exceed a defined share of risk. This rule binds us most precisely when conviction is highest, which is exactly when it is most needed. Concentration has made fortunes and destroyed them; the difference is usually survival, not skill.
Targeting volatility, not price
Because the volatility of digital assets shifts dramatically across regimes, a fixed capital weight delivers wildly different risk over time. We instead target a volatility contribution: as an asset becomes more volatile, the position is trimmed; as it calms, the position can grow. The portfolio’s risk stays roughly constant even as markets do not.
Pre-deciding the hard decisions
The worst moment to decide how much loss you can tolerate is during the loss. We define drawdown thresholds and the responses to them in advance, in writing, when judgement is clear. When the threshold is reached, we act on the rule rather than the emotion. Discipline of this kind is unglamorous, and it is the single largest determinant of whether a portfolio is still standing at the end of a cycle.
Position discipline is the other half of the institutional allocation decision, it shapes how we read sources of return such as on-chain yield, and it is one of the four pillars examined in our guide to how institutions build and manage a digital asset portfolio.
Sizing is one control among several; the wider system of limits, monitoring and escalation it belongs to is set out in our note on building an institutional crypto risk framework. To see how risk-first management is built into every mandate, explore our portfolio strategies or book a portfolio review.
FAQ
Frequently asked questions
Because the mathematics of loss is unforgiving. A portfolio that falls 50% must rise 100% to recover; a fall of 80% requires a fivefold gain. In an asset class capable of such moves, the first objective of risk management is not to maximise return but to ensure the portfolio survives to compound.
Because the volatility of digital assets shifts dramatically across regimes, a fixed capital weight delivers wildly different risk over time. We instead target a volatility contribution: as an asset becomes more volatile the position is trimmed, and as it calms the position can grow — so portfolio risk stays roughly constant even as markets do not.
We pre-decide the hard decisions. Drawdown thresholds and the responses to them are defined in advance, in writing, when judgement is clear. When a threshold is reached we act on the rule rather than the emotion.