It would be great to meet old age in abundance: to travel a lot, not worry about money and be able to leave an inheritance to grandchildren. But in today’s realities, a decent pension is primarily the work of the pensioner himself.
You cannot rely on the state, growing inflation eats up all savings, and it is unclear which stocks to buy in the long term. Against this background, Bitcoin stands out , the cost of which can increase several times over the course of a year. And the most ardent bitcoin enthusiasts do believe that one day the coin will cost $ 1 million. So maybe the best way to meet old age in abundance is to buy some cryptocurrencies now and calmly wait for financial well-being?
Let’s figure out if cryptocurrencies are suitable for retirement savings, how to build such a portfolio and which investment strategy is the most reliable.
Benefits of cryptocurrencies as an asset
Cryptocurrencies are a unique digital asset that has many advantages over traditional financial instruments such as deposits, securities, precious metals and real estate, among others.
Profitability. Cryptocurrencies are the most profitable asset of the last century. So, over the past 12 years, bitcoin has grown from zero to $ 60,000, ether since its launch has risen to $ 2,000 at its maximum, and the entire crypto market reached a record capitalization of $ 1.8 trillion on March 14.
So, if you invested $ 100 in bitcoin 12 years ago, now you would have about $ 2 billion.
No other asset has brought investors such astronomical returns. If the predictions of crypto-optimists turn out to be correct, then in 10-20 years, and maybe even earlier, bitcoin will cost more than a million dollars. A couple of military-technical cooperation bought now will provide you and your family with a comfortable old age – you will also leave a fortune to your grandchildren.
The deflationary nature of Bitcoin. The limited edition coin does not lend itself to inflation. After all, a total of 21 million bitcoins will be issued, while several million of them have already been lost forever . This means that the supply of military-technical cooperation will gradually decrease. And if the demand for bitcoin continues, then its price will rise in the long term. Satoshi Nakamoto specifically invested in Bitcoin this deflationary mechanism, thanks to which the coin will only rise in price, and not fall in value.
Protective assets. Cryptocurrencies are weakly correlated with traditional markets: for example, when securities fall, bitcoin can rise, and vice versa. It does not depend on the price of oil either. Therefore, the first cryptocurrency is often perceived as a «safe haven» – an asset in which you can ride out the «storm» in traditional markets. It is for these purposes that large companies buy bitcoin: Tesla , MicroStrategy , Square and others.
Decentralization. Decentralized coins do not have a governing center, person or company: the coins belong to the one who has the private key to the blockchain wallet where they are stored. Therefore, third parties in the form of governments or banks cannot confiscate them. As long as you own the private key, you own your coins. The main thing is not to lose the key, otherwise access to the coins will also be lost.
Risks of long-term investments in cryptocurrencies
Investments for retirement are long-term investments for 20-40 years. But the oldest cryptocurrency is still only 12 years old. Of course, you can be sure that in a few years bitcoin will not go anywhere and even try to predict its price . But no one knows what will happen to the entire digital asset market in a few decades.
Hence, there are many specific risks of long-term investments in cryptocurrencies that you need to be aware of:
High volatility. Cryptocurrency prices are constantly jumping. It is believed that pension savings should be as reliable as possible. But in the future, price jumps can be ignored – a specific entry point is not very important, the main thing is that there is a general upward trend. In addition, as the cryptocurrency market grows and matures, the volatility of coins should decrease.
Fiat withdrawal fees. Cryptocurrencies are famous for allowing cross-border payments to anywhere in the world for thousands and millions of dollars with minimal fees. But when withdrawing to ordinary, fiat currencies through exchange or trading platforms, you will also have to pay an additional commission of several percent of the total amount – it all depends on the method of withdrawing cryptocurrencies. However, maybe in 20-30 years it will no longer be necessary to withdraw cryptocurrencies into fiat money – it is quite possible that we will all use digital coins in everyday life.
Uncertain legal status. The crypto market is over 12 years old, but the authorities of most countries have not yet decided how exactly to regulate this industry. For example, in Russia, the definition of digital assets in legislation appeared only last year, but it is still not clear how transactions with them will be taxed. Therefore, no one even undertakes to predict what will happen to cryptocurrencies in 10 or 20 years. The most pessimistic scenario cannot be ruled out, in which bitcoin will become outlawed and banned, and any coin holder will turn into a criminal.
The price depends on the demand. Coins based on the Proof-of-Work (PoW) consensus algorithm , which include Bitcoin, have no guaranteed future return: interest or dividends. The BTC price depends only on the demand for it. In this respect, Bitcoin is a lot like gold. But if the precious metal is with us from time immemorial, then what will happen to bitcoin in a couple of decades – no one knows. However, this disadvantage is eliminated with the help of coins, working on the basis of Proof-of-Stake (PoS) . Staking works in such blockchain networks – an analogue of passive income, when the holder receives a reward for providing his coins to the network validators and “freezing” them in his wallet.
Edward Dubinsky, investor, founder and managing partner of Fintelect, also noted that cryptocurrencies do not have a lot of statistics.
“Cryptocurrencies are a fairly young asset in the field of finance, and their prospects cannot be determined and predicted. However, when we save money for retirement, on the contrary, we should try to get a good idea of the amount of future savings, because we will have to live on them in old age. In the case of traditional instruments, you can roughly calculate the expected percentage of profitability that the invested capital will earn. »
In the case of securities and other instruments, there is empirical data for hundreds of years, and in the case of cryptocurrencies, for a maximum of 12 years.
Security. An institution is always responsible for the safety of traditional assets: money is kept in banks, shares – in depositories. But only you are responsible for the safety of digital coins. Of course, you can keep coins on a crypto exchange, but they are more likely to be attacked by hackers. After all, do not forget the phrase of the famous bitcoin evangelist Andreas Antonopoulos – «not your keys, not your bitcoins.» In other words, as long as you provide access to your private key to third parties: in fact, you are transferring your bitcoins to them.
Crypto wallets also do not guarantee the safety of funds: they can break, you can lose them or forget the private keys from them. After all, all of your digital assets can be stolen by hackers. For large investors, a way out is special custodian services that take over the storage of coins. But ordinary users will not be able to afford them.
Difficulty with inheritance. If you do not transfer private keys to descendants in time, they may lose your crypto capital.
You have to be a pioneer. So far, not a single generation has saved up for old age in cryptocurrencies. There are suddenly rich early investors – but that’s a different story. Those who decide to save up for old age in digital assets will have to be the first to face many as yet unexplored problems.
Cryptocurrencies in a retirement account
In the West, for several years now, investors have been able to save up for retirement in cryptocurrencies not «handicraft» – in their own wallets – but absolutely officially in pension accounts.
For example, in the US, cryptocurrencies can be added to a self-directed IRA, allowing investment in alternative asset classes such as real estate, precious metals, and cryptocurrencies. You do not have to pay taxes on assets in this account.
Under US law, retirement savings must be held by a tax-approved special custodian. Most of these custodians, of course, do not accept cryptocurrencies, but companies have been working on the market for several years that help invest retirement savings in digital assets. Among them: Bitcoin IRA, BitIRA, Noble Bitcoin, CoinIRA, Alto, BlockMint, Equity Trust, Ira Financial Trust, and iTrust Capital.
They keep their private keys and charge a commission for the provision of services in the amount of 10-15% of the yield. Coins can only be withdrawn after reaching retirement age. If you do this earlier, you will have to pay a fine. Cryptocurrencies can be held independently on another type of account – checkbook IRA, but this scheme requires active management.
In Russia, investing cryptocurrencies for retirement is still possible only on your own, holding coins either in your wallets or on a crypto exchange . Recall that in the country, the pension consists of two parts: insurance, which goes to payments to today’s pensioners, and funded, which can be invested through pension funds. Therefore, although digital assets are legal, there is no way to keep them in a retirement account, and funds are limited in the choice of assets.
How to build a retirement crypto portfolio
Based on the above arguments, we do not recommend making cryptocurrencies your main and only retirement asset. If the optimistic predictions come true, then of course you will get rich, even if you buy just a couple of bitcoins. Well, if something goes wrong, you will only lose part of your portfolio.
And remember that the main requirement for any investment portfolio is diversification: buy as many different assets as possible. The ideal option is to invest in cryptocurrencies for retirement if you already have investments in other instruments.
What coins to buy? We think that now we can more or less confidently recommend only bitcoin for purchase – this is the most time-tested coin.
It is important to understand that the vast majority of altcoins are doomed to disappear in the next 10-30 years. They will be replaced by newer, more advanced protocols and will either disappear or cost nothing. Some projects, of course, will be able to restructure and stay on the market, but no one can say in advance which ones. And investors value the same bitcoin not for its technical excellence (it has long been inferior to younger and more powerful blockchains ), but for its primacy, thanks to which it has become the “digital gold”.
Evgeniy Marchenko, director of EMFINANCE, believes that:
“When choosing tokens for long-term investments, you should pay attention only to the leaders. If, in the case of speculative transactions, you can choose coins that are supposed to “shoot” in the future, then for a pension portfolio it is preferable to look at the top 5 in terms of capitalization. At the same time, if you are ready to follow this market, then, perhaps, in the future it will be necessary to change the set of coins. However, you shouldn’t rebalance your portfolio more than once a year. ”
How much money to keep in cryptocurrencies
Let us repeat that savings for retirement are investments with a horizon of 20-40 years. This period leaves a significant imprint on the investment strategy. A long-term investor is not afraid of long-term drawdowns – if the market grows in the long term, you do not need to worry about losses and bearish cycles.
Hence a simple and classic conclusion: the sooner you start saving for retirement in cryptocurrencies, the more you can keep in your portfolio. If you are only 20, you will not be afraid of a single collapse of the crypto market – it will grow back more than once. But when you are 60 or over, you may not have time to wait for a new bullish trend. Therefore, it is better to buy as many cryptocurrencies as possible while you are 20-30 years old, and as you grow older, reduce the share of investments in cryptocurrencies.
The exact proportion of crypto in a retirement portfolio depends on your level of risk and belief in that asset class. If you just want to diversify your portfolio, keep about 1% in digital assets – this is what JP Morgan experts , Edelman Financial Engines founder Rick Edelman and Tim Enneking, managing director of Digital Capital Management advise . Such a share will protect against failure, but if successful, it will bring excellent returns. Crypto enthusiasts can keep up to 5-10% of their retirement savings in digital assets. If you absolutely believe in cryptocurrencies and are a maximalist, then you can take risks and invest up to 20-30%, but only in the most proven coins and being aware of all the risks.
Evgeny Marchenko noted that one of the unobvious advantages of cryptocurrencies as an asset is a decrease in the overall volatility of the portfolio.
“It might seem counterintuitive, given that the [digital] asset itself fluctuates quite a lot. However, economic models show that a small share of, for example, bitcoin has a positive effect on the investment portfolio as a whole. The share of digital currency in the pension portfolio with the most aggressive risk profile should not exceed 10%. More conservative investors should reduce it to 5%, and for many, 1–2% will be enough. »
The most important thing is no borrowed funds. Pension savings can only be made with your own money – with the money that you will not need for the next 30 years.
HODL is the most reliable long-term strategy
OK. We bought coins. But what to do with them? Should I trade or not? How often to change the ratio of assets in the portfolio? The answers to these questions depend on your experience and risk appetite.
But the most universal advice is not to trade in retirement savings. Just buy cryptocurrencies and don’t do anything with them – keep them in a safe place until you are about to sell. This strategy is called HODL. It is the perfect choice for the lay investor and one of the best strategies in the long run.
The term HODL originated from a typographical error. When the price of BTC fell sharply in December 2013, a forum user under the nickname Gamekyuubi announced that he continued to hold the coin, no matter what. But he sealed himself in the word «I hold» by writing I AM HODLING instead of the correct I AM HOLDING. The typo became the meme and the name of the Buy and Hold strategy.
If cryptocurrencies are like other assets, then in the long term they will maintain an upward trend. Trading and speculation on the long-term horizon can increase profits only slightly (if they are successful, which is not at all guaranteed), but it will significantly increase the risks. Therefore, it is safer and more often more profitable to just keep the coins.
To buy it is not necessary to wait for the market drawdown – over a long distance, the difference between buying at a higher price and at a lower price is leveled. You can buy coins regularly, for example, once a month or every six months, for the planned amount. Then you will save yourself from buying at local highs. During a drawdown, you can buy more.
But the HODL strategy also has drawbacks. If the trend changes to a downtrend, you can overexpose assets and lose money. In addition, sometimes you still have to rebalance the portfolio – change the ratio of assets. If one of the projects in which you have invested is about to close, it will become simply illogical to continue to keep money in it. Also, HODL will not allow you to earn tens and hundreds of percent on short-term races.
Another long-term investment option is investing in a crypto fund. Fortunately, there are already hundreds of offers on the crypto market . Funds have many advantages: they themselves monitor the market and the portfolio. But there are also many disadvantages: the fund can bring negative returns, turn out to be a scam project, or even close down altogether. In addition, so far there is not a single crypto fund that has worked for at least 10 years.
Cryptopensions – a driver of market development
Pensions are a trillion dollar market. While saving for old age in cryptocurrencies seems exotic, in fact, investing at least 1% of your pension portfolio in digital assets is a diversification of risks and can bring excellent returns.
Back in 2019, two US pension funds invested $ 40 million in a cryptocurrency fund. So far, this is a very small amount, but if other funds follow their example, it could bring tens of billions of dollars into the sector. All this will become another driver for the development of the crypto market.
We are sure that over time, more and more people will save money for old age in various digital coins like bitcoin. Indeed, in the future, probably, most of the problems encountered today with pension savings in cryptocurrencies will be resolved: there will be appropriate legislation, and specialized tools and even separate cryptocurrency pension funds will be available.
