Bitcoin soared in 2024. How much — if any — should you own?

Bitcoin prices are set to rise in 2024. But you may want to tread carefully before the euphoria leads you to some kind of rush purchase.

Bitcoin and other cryptocurrencies should generally count just a joke of investors’ portfolio – generally no more than 5% – due to its extreme volatility, according to financial experts.

Some investors may be wise to stay away from it altogether, they said.

“You won’t have the same size allocation in bitcoin as you do Nasdaq or him S&P 500,” said Ivory Johnson, a certified financial planner and founder of Washington, D.C.-based Delancey Wealth Management.

“As long as you have a real volatile asset class, you need less in the portfolio to have the same impact” as traditional assets like stocks and bonds, said Johnson, a member of CNBC. Financial Advisory Board.

Bitcoin, the largest cryptocurrency, was the higher investment of 2024, for a long time. Prices rose about 125%, ending the year around $94,000 after starting in the $40,000 range.

In comparison, the S&P 500, an American stock index, increased by 23%. The Nasdaq, a tech-heavy stock index, rose 29%.

Prices rose after the victory of the presidential election of Donald Trump. His administration is expected to embrace deregulation policies that will boost crypto demand.

Last year, the Securities and Exchange Commission also – for the first time – approved funds exchanged what you do invest directly in bitcoin and ether, the second largest cryptocurrency, making crypto easier for retail investors to buy.

But experts have warned that the high profits may belie an underlying danger.

“With high returns comes high risk, and crypto is no exception,” Amy Arnott, a portfolio strategist for Morningstar Research Services, he wrote in June.

Bitcoin has been nearly five times as volatile as U.S. stocks since September 2015, and ether has been nearly 10 times more volatile, Arnott wrote.

“A portfolio weighting of 5% or less seems prudent, and many investors may want to skip cryptocurrency altogether,” he said.

Bitcoin lost 64% and 74% of its value in 2022 and 2018, respectively.

Mathematically, investors need a 100% return to recover from a 50% loss.

So far, crypto returns have been high enough to offset their additional risk — but it’s not a given that the pattern will continue, Arnott said.

There are a few reasons for this: Crypto has become less valuable as a portfolio diversifier as it has become more mainstream, Arnott wrote. Its popularity among speculative buyers “also makes it prone to price bubbles that will eventually burst,” he added.

BlackRock, a money manager, thinks there is a case for owning bitcoin in a diversified portfolio, for investors who are comfortable with the “risk of a potentially rapid price collapse” and who believe it will be more widely adopted, experts from the BlackRock Investment Institute. he wrote in early December.

(BlackRock offers a bitcoin ETF, the iShares Bitcoin Trust, It will go.)

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An allocation of 1% to 2% to bitcoin is a “reasonable range”, write BlackRock experts.

Going beyond that would “drastically increase” bitcoin’s share of a portfolio’s total risk, they said.

For example, a 2% bitcoin allocation accounts for about 5% of the risk of a traditional 60/40 portfolio, BlackRock estimated. But a 4% allocation increases that figure to 14% of the portfolio’s total risk, he said.

“In Vanguard’s view, crypto is more of a speculation than an investment,” Janel Jackson, Vanguard’s former global head of ETF Capital Markets and Broker & Index Relations, he wrote in January 2024.

Stock investors own shares of companies that produce goods or services, and many investors receive dividends; bond investors receive regular interest payments; and commodities are real assets that meet consumer needs, Jackson wrote.

“While crypto has been classified as a commodity, it is an immature asset class that has little history, no inherent economic value, no cash flow, and can wreak havoc on a portfolio,” wrote Jackson, now a executive in the company’s Financial Advisory Services. unit.