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 crypto as a stand-alone asset class, the situation appears to be changing. That’s especially true for younger investors, who appear much more willing to take on additional risk if it means the chance to retire early.
From my perspective, there are still only two cryptocurrencies that make sense when saving for retirement: Bitcoin (CRYPTO: BTC) and Ethereum (CRYPTO: ETH). It’s impossible to ignore the returns they have 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 no-brainer crypto investment option is Bitcoin, which has an incredible track record of outperforming the broader market. From 2011 to 2021, for example, Bitcoin was the top-performing asset in the world, and it wasn’t even close. Bitcoin delivered annualized returns of 230% per year. The next best asset class — tech stocks — delivered just 20% per year. While that type of performance will be difficult to replicate going forward, Bitcoin delivered returns of 150% last year, and is up 60% through the first five months of 2024.
With Bitcoin currently trading near its all-time high of $73,750, the big question on the minds of many investors is just how much higher it can go. Some have suggested that Bitcoin could hit $150,000 by the end of 2025. And Cathie Wood of Ark Invest has suggested that Bitcoin could soar to $1 million by 2030. If your retirement horizon is 10, 20, or even 30 years away, the sky’s the limit for just how much higher Bitcoin might go.
There’s one more factor that makes Bitcoin particularly compelling from a retirement planning perspective: the launch of new spot Bitcoin ETFs in January. Prior to this year, using crypto to save for retirement was pretty much a patchwork, DIY project. It was complicated and not efficient because there was no standardized crypto investment product that individual investors could use for retirement. Now there is. And the thinking now is that Bitcoin ETFs are going to start showing up more and more as options in retirement savings plans.
2. Ethereum
Just like Bitcoin, Ethereum has delivered outsized returns over the past decade. When Ethereum launched nearly a decade ago, it was valued at just $0.30. Today, Ethereum is valued at nearly $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 here is that Ethereum has a compelling long-term investment thesis. It has a dominant role in just about every niche of the blockchain world, as well as the most diversified blockchain ecosystem. Even better, Ethereum’s much-ballyhooed technical transformation (“The Merge”) in 2022 laid the groundwork for the next major stage of growth.
And, like Bitcoin, Ethereum will soon have its own ETFs. At the end of May, the SEC signed off on spot Ethereum ETFs. Investment firms still need to submit some final paperwork to the SEC before the new ETFs can start trading. But once they do, they could eventually become valuable tools for retirement planning.
Does crypto belong in your retirement portfolio?
Admittedly, there are several drawbacks to adding cryptocurrency as part of your retirement portfolio. Most importantly, there’s the matter of volatility. Yes, Bitcoin and Ethereum have delivered some incredible returns over the past decade. But they have also had some very bad years when they lost more than half of their value. That’s the last thing you want in a retirement asset.
With that in mind, the most prudent advice is to allocate only a small amount of your retirement portfolio to crypto. You’ll gain the diversification benefits of crypto as a unique asset class, but you’ll minimize the risks of a potential crypto meltdown. And, to minimize risk even further, you should probably focus on using the new spot ETFs for Bitcoin and Ethereum rather than trading crypto directly.
But here’s the thing — if you’re rapidly nearing retirement age or are well behind on your retirement savings needs, adding just a tiny amount of crypto to your portfolio could make a tremendous difference. As long as you adopt a long-term perspective and are cognizant of the risks involved with crypto, Bitcoin and Ethereum could help you retire in style. And potentially even a few years earlier than planned.
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Dominic Basulto has positions in Bitcoin and Ethereum. The Motley Fool has positions in and recommends Bitcoin and Ethereum. The Motley Fool has a disclosure policy.
Cryptocurrency for Retirement Planning? Buy These 2 Coins Now was originally published by The Motley Fool