Bitcoin prices surged in 2024, prompting caution against impulsive buying due to the cryptocurrency’s extreme volatility. Financial experts recommend allocating only a small portion, generally no more than 5%, of an investor’s portfolio to Bitcoin and other cryptocurrencies.
Ivory Johnson, a certified financial planner, advises against allocating the same size to Bitcoin as to traditional assets like stocks and bonds due to its high volatility. Bitcoin emerged as the top-performing investment in 2024, with prices rising by about 125% to close the year at around $94,000.
The surge in prices followed Donald Trump’s U.S. presidential election win, with expectations of favorable regulatory policies boosting crypto demand. Despite the potential for high returns, experts warn of the significant risks associated with cryptocurrencies, emphasizing the need for prudent portfolio allocation.
Amy Arnott, a portfolio strategist, highlights the high volatility of Bitcoin and Ether compared to U.S. stocks, cautioning investors to limit their crypto exposure to 5% or less. BlackRock suggests a 1% to 2% allocation to Bitcoin in a diversified portfolio, emphasizing the need to manage the risk of rapid price fluctuations.
Vanguard, on the other hand, views crypto as more of a speculation than an investment, citing its immature nature and lack of inherent economic value. Financial advisors stress the importance of considering one’s risk tolerance and investment goals when deciding on a crypto allocation in their portfolio.
Younger, more aggressive investors may opt for a higher crypto allocation, while others may prefer a more conservative approach. Dollar-cost averaging and long-term holding are recommended strategies for investing in cryptocurrencies, given their volatile nature. Morningstar suggests holding cryptocurrency for at least 10 years to potentially mitigate risks associated with short-term price fluctuations.
