Bitcoin Rise in 2024. How much – if any – should you own?

Bitcoin prices skyrocketed in 2024. However, it is worth being careful before the euphoria sends you into a frenzy of rash purchases.

Bitcoin and other cryptocurrencies should generally be considered just a splinter according to financial experts – generally no more than 5% – due to its extreme volatility.

Some investors would be wise to stay away from it, they say.

“You won't have the same size allocation in bitcoin that you would Nasdaq or S&P500,” said Ivory Johnson, certified financial planner and founder of Washington, D.C.-based Delancey Wealth Management

“Anytime you have a really volatile asset class, you need less of it in your portfolio to have the same impact” as traditional assets like stocks and bonds, Johnson, the CNBC contributor, told Council of Financial Advisors.

Bitcoin, the largest cryptocurrency, was the best performing investment looking ahead to 2024. Prices increased by approximately 125%, ending the year around $94,000 after starting in the $40,000 range.

For comparison, the American stock index S&P 500, increased 23%. The Nasdaq, a technology-enabled stock index, rose 29%.

Prices rose sharply after Donald Trump's victory in the US presidential election. His administration is expected to adopt deregulatory policies that will spur demand for cryptocurrencies.

Last year, the Securities and Exchange Commission also gave its approval – for the first time listed funds This invest directly in bitcoin AND ether, the second largest cryptocurrency, making it easier for retail investors to purchase cryptocurrencies.

However, experts warn that high profits may hide hidden dangers.

“High returns come with high risk, and cryptocurrencies are no exception” – Amy Arnott, portfolio strategist at Morningstar Research Services, he wrote in June.

As of September 2015, bitcoin was almost five times more volatile than U.S. stocks and ether was almost 10 times more volatile, Arnott wrote.

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

Bitcoin lost 64% and 74% its values ​​in 2022 and 2018, respectively.

Mathematically speaking, investors need a 100% return to make up for a 50% loss.

So far, cryptocurrency returns have been high enough to offset the added risk – but it's not certain that this trend will continue, Arnott said.

There are several reasons for this: Cryptocurrencies have become less valuable as a portfolio diversifier as they have become more popular, Arnott wrote. Its popularity among speculative buyers “makes it susceptible to price bubbles that will eventually burst,” she added.

Money manager BlackRock believes that holding bitcoin in a diversified portfolio is justified for investors who are comfortable with the “risk of potentially sharp price declines” and believe it will become more widely adopted, experts from the BlackRock Investment Institute he wrote in early December.

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

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A 1% to 2% allocation for bitcoin is a “reasonable range,” BlackRock experts wrote.

Going beyond that would “significantly increase” bitcoin's contribution to total portfolio risk, they said.

For example, a 2% bitcoin allocation is roughly equivalent to 5% of the risk of a traditional 60/40 portfolio, BlackRock estimated. However, a 4% allocation increases that number to 14% of the total portfolio risk, he said.

“In Vanguard's opinion, cryptocurrencies are more speculation than investment” – Janel Jackson, former global head of ETF Capital Markets and Broker & Index Relations at Vanguard, he wrote in January 2024

Stock market investors hold shares of companies that produce goods or services, and many investors receive dividends; bond investors receive regular interest payments; and goods are actual assets that satisfy consumption needs, Jackson wrote.

“Although cryptocurrencies have been classified as a commodity, it is an immature asset class that has a short history, inherent economic value, lacks cash flow and can cause havoc on a portfolio,” wrote Jackson, now a director in the unit's financial advisor services division.