Managing Risk in High-Beta Portfolios
Lessons from venture investing applied to crypto
The past few days in crypto have been a brutal reminder of how high-risk environments breed both opportunity and disaster. A massive scam tied to a Solana meme coin launch for the Argentinian government unraveled in real time, with liquidity drained and traders left holding the bag. The fraud was blatant. A textbook rug pull. And predictably, Twitter exploded with outrage.
This kind of thing happens far too often in crypto. And while it's easy (and justified) to be mad at the fraudsters, the reality is that if you’re trading these assets, you need to get smart about managing risk—because fraud, bad actors, and market manipulation aren’t bugs in the system. They’re features of any high-volatility, high-variance market.
Risk vs. Return: The Game Every Trader Plays
Every asset—whether it’s a startup investment, a stock, or a crypto token—exists on a risk-return spectrum. The holy grail is, of course, low risk, high return. But the problem is, people are extremely good at identifying those opportunities, and true "alpha"—a consistent edge over the market—is incredibly rare.
In traditional markets, the standard playbook for portfolio management is simple: balance between Treasuries and the S&P 500, lever up if necessary, and move the slider depending on your risk tolerance. In crypto, though, that stability doesn’t exist. Everything is high-beta, and the variance is off the charts. Which means if you want to play this game, you need a more sophisticated approach to portfolio construction.
Lessons from Venture Investing: A Smarter Way to Manage Risk
My first (ever) job was as an intern at Foundry Group, I worked with investors like Lindel Eakman, who is one of the experts in venture portfolio construction (iykyk). He helped manage a private endowment called UTIMCO, which handled the University of Texas’ $40 billion endowment and with funds he managed tripled a billion-dollar portfolio in a few years. His core insight? Even in high-risk investing, success comes down to structuring bets in a way that maximizes upside while managing risk.
For early-stage VC funds, this meant writing enough checks to catch winners without over-diluting the portfolio’s alpha. The magic number seemed to be around 25-30 investments per vintage. That’s high risk, but diversified enough to avoid total wipeouts. Then you just need to find the right managers that can find the alpha.
Now, apply that to crypto trading. Instead of going all-in on a hyped project (and praying it’s not the next scam), you construct a portfolio that assumes some level of failure. You expect some percentage of projects to go to zero. You anticipate bad actors will make their way in. And instead of getting wrecked when it happens, you build a structure that absorbs the losses.
Fraud is Inevitable—But It Shouldn’t Kill Your Portfolio
Here’s the thing: Fraud and failure are built into every high-risk market. In venture, if you invest in 1,000 startups, you’re bound to fund a couple of fraudsters and A LOT of failures. That’s just statistics. The key is making sure the frauds don’t sink your whole portfolio. It’s the outliers that pull the whole thing through.
The same principle applies to crypto. Whether it’s FTX, Meteora, or the latest rug pull, these events aren’t outliers—they’re part of the game. And if you’re serious about trading, your strategy needs to account for them.
Instead of being shocked when a project collapses, structure your capital allocation with the assumption that some portion of your portfolio will go to zero. Diversify. Manage position sizing. Don’t overexpose yourself to a single asset. And above all, recognize that in markets where alpha is scarce, your edge comes from managing risk, not chasing hype.
TL;DR: High-Beta Portfolio Construction
Fraud and failures are inevitable in crypto. Expect them, don’t be surprised by them.
True alpha is rare. If you have it, use it. But don’t assume you do.
Portfolio construction matters. Venture funds don’t go all-in on one startup. You shouldn’t go all-in on one token.
Risk-adjusted returns are the real game. Your goal isn’t just to hit home runs—it’s to stay in the game long enough to catch the right opportunities.
Smart money plays defense as much as offense. Expect variance, hedge against it, and don’t let one bad trade wipe you out.
At the end of the day, outrage at fraudsters is warranted, but the real way to win is by protecting yourself before the fraud even happens. If you’re in this market, trade accordingly.