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

Bitcoin Prices rise in 2024. But you may want to tread carefully before the euphoria leads you into an impulsive buying spree.

Bitcoin and other cryptocurrencies should be taken into consideration in general Just a piece of cheese of investors’ portfolios — generally no more than 5% — due to extreme volatility, according to financial experts.

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

“You won’t have the same volume allocated to Bitcoin as you do Nasdaq or Standard & Poor’s 500said Ivory Johnson, a certified financial planner and founder of Delancey Wealth Management, based in Washington, D.C

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

Bitcoin, the largest cryptocurrency, was Best performing investment For 2024, by a large margin. Prices rose nearly 125%, ending the year around $94,000 after starting in the $40,000 range.

In comparison, the S&P 500, an index of US stocks, rose 23%. The Nasdaq, a technology-heavy stock index, rose 29%.

Prices rose after Donald Trump’s victory in the US presidential elections. His administration is expected to adopt liberal policies that will stimulate demand for cryptocurrencies.

Last year, the Securities and Exchange Commission also agreed — for the first time — to do so Exchange-traded funds Which Invest directly in Bitcoin and ether, The second largest cryptocurrency, making it easier for retail investors to purchase cryptocurrencies.

But experts have warned that the exorbitant profits may hide an underlying danger.

“With high returns comes high risk, and cryptocurrencies are no exception,” says Amy Arnott, portfolio strategist at Morningstar Research Services, books In June.

Bitcoin has been nearly five times more volatile than US stocks since September 2015, and ether has been about 10 times more volatile, Arnott wrote.

“A portfolio weight of 5% or less seems prudent, and many investors may want to skip crypto altogether,” she 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, cryptocurrencies’ returns have been high enough to offset their additional risks — but it’s not certain that this pattern will continue, Arnott said.

There are several reasons for this: Arnott writes that cryptocurrencies are becoming less valuable as a portfolio diversification tool as they become more mainstream. She added that its popularity among speculative buyers “makes it vulnerable to pricing bubbles that will eventually burst.”

BlackRock, a money management firm, believes there is a case for holding bitcoin in a diversified portfolio, for investors who are comfortable with “the risks of a potentially rapid price decline” and who believe it will be more widely adopted, experts at the BlackRock Investment Institute said. books In early December.

(BlackRock offers a bitcoin ETF, iShares Bitcoin Trust, Ebit.)

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BlackRock experts wrote that a 1% to 2% allocation to Bitcoin is a “reasonable range.”

Exceeding that would “sharply increase” bitcoin’s share of total portfolio risk, they said.

For example, a 2% bitcoin allocation represents roughly 5% of the risk of a traditional 60/40 portfolio, BlackRock estimates. But a 4% allocation brings that number to 14% of the total portfolio risk.

“From Vanguard’s perspective, cryptocurrencies are more speculation than investment,” Janelle Jackson, former global head of capital markets, brokerage and indices ETF relationships at Vanguard, said. books In January 2024.

Equity investors own shares of companies that produce goods or services, and many investors receive dividends; Bond investors receive regular interest payments; Commodities, Jackson wrote, are real assets that satisfy consumption needs.

“Although cryptocurrencies are classified as a commodity, they are an immature asset class with little history, no inherent economic value, no cash flow, and can create clutter within a portfolio,” wrote Jackson, now an executive at the firm’s Financial Advisor Services. lonliness.