A bitcoin ATM in Miami. Joe Raedle | Getty Images News | Getty ImagesBitcoin prices soared in 2024. But you may want to tread with caution before euphoria leads you on a hasty buying spree.Bitcoin and other crypto should generally account for just a sliver of investor portfolios — 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’re not going to have the same size allocation in bitcoin as you would Nasdaq or the S&P 500,” said Ivory Johnson, a certified financial planner and founder of Delancey Wealth Management, based in Washington, D.C.”Whenever 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, said Johnson, a member of the CNBC Financial Advisor Council.Why bitcoin prices increased in 2024Bitcoin, the largest cryptocurrency, was the top-performing investment of 2024, by a long shot. Prices surged about 125%, ending the year around $94,000 after starting in the $40,000 range.By comparison, the S&P 500, a U.S. stock index, rose 23%. The Nasdaq, a tech-heavy stock index, grew 29%.Prices popped after Donald Trump’s U.S. presidential election win. His administration is expected to embrace deregulatory policies that would spur crypto demand.A cartoon image of President-elect Donald Trump holding a bitcoin token in Hong Kong, China, on Dec. 5, 2024, to mark the cryptocurrency reaching over $100,000. Justin Chin/Bloomberg via Getty ImagesLast year, the Securities and Exchange Commission also — for the first time — approved exchange-traded funds that invest directly in bitcoin and ether, the second-largest cryptocurrency, making crypto easier for retail investors to buy.But experts cautioned that lofty profits may belie an underlying danger.”With high returns come high risk, and crypto is no exception,” Amy Arnott, a portfolio strategist for Morningstar Research Services, 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 as volatile, Arnott wrote.”A portfolio weighting of 5% or less seems prudent, and many investors may want to skip cryptocurrency altogether,” she said.1% to 2% is ‘reasonable’ for bitcoin, BlackRock saysBitcoin 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 its additional risk — but it’s not a given that pattern will continue, Arnott said.You’re not going to have the same size allocation in bitcoin as you would Nasdaq or the S&P 500.Ivory JohnsonCFP, founder of Delancey Wealth ManagementThere are a few reasons for this: Crypto has become less valuable as a portfolio diversifier as it’s gotten more mainstream, Arnott wrote. Its popularity among speculative buyers also “makes it prone to
