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Cryptocurrency for Retirement Planning? Buy these 2 coins now
Bitcoin and Ethereum could help you save for retirement. But there are risks.
Just a few years ago, the idea of including cryptocurrency as part of a retirement investment strategy would have been unthinkable. But, with Wall Street now embracing the idea of cryptocurrencies as an asset class in their own right, that appears to be changing. This is especially true for younger investors, who seem much more willing to take on additional risk if it means they have the chance to retire early.
From my perspective, there are still only two cryptocurrencies that make sense when saving for retirement: Bitcoin (Bitcoin 0.64%) e Ethereum (ET -0.10%). It’s impossible to ignore the returns they’ve generated over the past decade. And new investment products are emerging that could make them much easier to add to a traditional retirement portfolio. Let’s take a closer look.
1. Bitcoin
The simplest cryptocurrency investment option is Bitcoin, which has an impressive track record of outperforming the broader market. From 2011 to 2021, for example, Bitcoin was the best-performing asset in the world, and it wasn’t even close. Bitcoin has produced annualized returns of 230% per year. The second best asset class, technology stocks, returned just 20% annually. While this type of performance will be difficult to replicate in the future, Bitcoin produced returns of 150% last year and is up 60% in the first five months of 2024.
With Bitcoin currently trading near its all-time high of $73,750, the big question on many investors’ minds is how much higher it can go. Some have suggested that Bitcoin could reach $150,000 by the end of 2025. And Ark Invest’s Cathie Wood has suggested that Bitcoin could rise to $1 million by 2030. If your retirement horizon is 10, 20 or even 30 years later, the sky is the best. limit how much Bitcoin could rise.
Image source: Getty Images.
There is another factor that makes Bitcoin particularly interesting from a retirement planning perspective: the launch of new ones Spot Bitcoin ETF in January. Before this year, using cryptocurrencies to save for retirement was pretty much a patchwork, do-it-yourself project. It was complicated and inefficient because there was no standardized crypto investment product that individual investors could use for retirement. Now there is. And the idea now is that Bitcoin ETFs will start to appear more and more as options in retirement savings plans.
2. Ethereum
Just like Bitcoin, Ethereum has produced outsized returns over the past decade. When Ethereum launched nearly a decade ago, it was valued at just $0.30. Today Ethereum is worth almost $4,000. Of course, past performance is no guarantee of future returns, so the key is to focus on Ethereum’s future growth prospects.
The good news is that Ethereum has a compelling long-term investment thesis. It has a dominant role in almost every niche of the blockchain world, as well as the most diverse blockchain ecosystem. Even better, Ethereum’s much-hyped technical transformation (“The Merge”) in 2022 has laid the foundation for the next major phase of growth.
And, like Bitcoin, Ethereum will soon have its own ETFs. At the end of May, the SEC approved Ethereum spot ETFs. Investment companies still need to file some final filings with the SEC before the new ETFs can begin trading. But once they do, they could eventually become valuable tools for retirement planning.
Are cryptocurrencies part of your retirement portfolio?
Of course, there are several disadvantages to adding cryptocurrency as part of your retirement portfolio. More importantly, there is the issue of volatility. Yes, Bitcoin and Ethereum have produced incredible returns over the past decade. But they also had very bad years where they lost more than half of their value. This is the last thing you want in a retirement asset.
With this in mind, the most prudent advice is to allocate only a small portion of your retirement portfolio to cryptocurrencies. You will get the diversification benefits of cryptocurrencies as a single asset class, but minimize the risks of a potential cryptocurrency collapse. And, to further minimize risk, you should probably focus on using the new spot ETFs for Bitcoin and Ethereum rather than trading cryptocurrencies directly.
But here’s the thing: If you’re quickly approaching retirement age or are far behind on your retirement savings needs, adding just a small amount of cryptocurrency to your portfolio could make a huge difference. As long as you take a long-term perspective and are aware of the risks associated with cryptocurrencies, Bitcoin and Ethereum could help you retire in style. And potentially even a few years earlier than expected.
Domenico Basulto has positions in Bitcoin and Ethereum. The Motley Fool has positions and recommends Bitcoin and Ethereum. The Motley Fool has a disclosure policy.