Should you own any Bitcoin in 2024?

• In 2024, Bitcoin outperformed the S&P 500, achieving a growth rate of approximately 125%, while the S&P 500 only grew by 23%.
• Experts advise that investors should limit their ownership of crypto to no more than 5% of their total holdings due to its volatility.
• Some think crypto doesn't have a place in investment portfolios.
• It is advisable for investors to plan for a long-term investment in bitcoin and to dollar-cost average into it.

Prices may have increased in 2024, but it's important to exercise caution before making any hasty buying decisions.

Financial experts advise that Bitcoin and other cryptocurrencies should typically comprise no more than 5% of an investor's portfolio, owing to their high volatility.

It may be prudent for some investors to avoid it entirely, according to their advice.

Ivory Johnson, a certified financial planner and founder of Delancey Wealth Management, based in Washington, D.C., stated that you won't have the same allocation in bitcoin as you would in other investments.

Johnson, a member of the CNBC Financial Advisor Council, stated that when dealing with volatile asset classes, you need less of them in your portfolio to achieve the same impact as traditional assets like stocks and bonds.

Why bitcoin prices increased in 2024

In 2024, Bitcoin, the largest cryptocurrency, outperformed all other investments with a massive 125% price increase, ending the year at approximately $94,000, up from its starting value of $40,000.

The Nasdaq, a tech-heavy stock index, outperformed the S&P 500, a U.S. stock index, with a growth of 29% compared to the S&P 500's 23%.

After the election of Donald Trump as the U.S. president, crypto demand is expected to increase due to the administration's anticipated embrace of deregulatory policies.

For the first time, the Securities and Exchange Commission approved exchange-traded funds that invest directly in bitcoin and ether, making crypto easier for retail investors to buy.

But experts cautioned that lofty profits may belie an underlying danger.

As Amy Arnott, a portfolio strategist for Morningstar Research Services, stated in June, crypto investments come with high returns but also carry high risk.

Since September 2015, bitcoin has been almost five times more volatile than US stocks, while ether has been almost ten times more volatile, according to Arnott.

It is wise to allocate no more than 5% of your portfolio to cryptocurrency, and many investors may choose to avoid it altogether, she advised.

1% to 2% is 'reasonable' for bitcoin, BlackRock says

In 2018, Bitcoin lost 74% of its value, while in 2022 it lost 64% of its value.

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

Arnott stated that while crypto returns have been sufficient to balance out its added risk, it is uncertain if this trend will persist.

As crypto has gained more mainstream attention, its value as a portfolio diversifier has decreased, according to Arnott. Additionally, she noted that its popularity among speculative buyers increases the likelihood of pricing bubbles that will eventually burst.

In early December, the BlackRock Investment Institute wrote that owning bitcoin in a diversified portfolio could be a good option for investors who are comfortable with the "risk of potentially rapid price plunges" and believe it will become more widely adopted.

The iShares Bitcoin Trust, IBIT, is a bitcoin ETF offered by BlackRock.

Tweaking investments after high stock returns is important. Maximizing crypto in 401(k) plans is crucial. Target-date funds may not be suitable for everyone.

BlackRock experts consider a 1% to 2% allocation to bitcoin as "reasonable."

Investing in bitcoin beyond a certain point would significantly increase the risk of a portfolio, experts warned.

A 2% bitcoin allocation accounts for roughly 5% of the risk of a traditional 60/40 portfolio, according to BlackRock. However, a 4% allocation increases that figure to 14% of the total portfolio risk, BlackRock stated.

More 'speculation' than investment?

Vanguard, another asset manager, does not currently have plans to launch a crypto ETF or offer one on its brokerage platform, officials stated.

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

Jackson wrote that 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 consumption needs.

"Although crypto is considered a commodity, it is an immature asset class with limited history, no inherent economic value, no cash flow, and the potential to cause damage to a portfolio," stated Jackson, who now works in the Financial Advisor Services unit of the firm.

Dollar-cost average and hold for the long term

According to financial advisors, an investor's total crypto allocation is determined by their risk tolerance and ability to handle it.

Douglas Boneparth, a CFP in New York and a member of CNBC's Advisor Council, stated that younger, more aggressive investors may allocate more crypto to their portfolios.

Boneparth, president and founder of Bone Fide Wealth, stated that investors typically allocate about 5% of their classic 80/20 or 60/40 portfolio to cryptocurrency.

"Bitcoin exposure could be beneficial for your portfolio, but it's not suitable for everyone and its volatility will persist. When it comes to other cryptocurrencies, it's challenging to determine which ones will be successful in the long run. However, there will undoubtedly be winners."

Johnson of Delancey Wealth Management advised investors to use a dollar-cost-averaging strategy when buying into crypto.

"Johnson explained that he purchases 1% of his target risk at a time to avoid putting all of his eggs in one basket. This way, he can gradually increase his exposure to risk without putting too much on the line at once."

Johnson advised investors to buy and hold crypto for the long term, just as they would with other financial assets.

Morningstar suggests holding cryptocurrency for at least 10 years, Arnott wrote.