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Are Crypto Assets, Such as Bitcoin, Solid Retirement Assets?

One of the challenges of discussing the merits of different investments is an ethical one. Investment advisors should not give anyone investment advice without knowing the person’s situation, including details about their family, goals, income, wealth, debts, and constraints. This especially goes for someone like me, a CFA charterholder and CFP certificant.

So, what follows is not meant to be investment advice or regulatory advice or legal advice! It is meant for general informational purposes only and should not be taken as professional counsel, nor should it be relied upon for making any decisions that could have significant legal, financial, or regulatory implications.

With that out of the way, let us address the question of whether crypto assets are appropriate retirement investments.

At GuidedChoice, we do not recommend allocating to any cryptocurrencies in our advice to paying clients.

That said, nor do we recommend allocating to individual stocks, individual commodities, or individual precious metals, such as gold. We recommend allocating to diversified portfolios of individual stocks, and depending on the situation, we may include allocations to diversified portfolios that include commodities and precious metals.

So where does this leave cryptocurrency investments? Does this mean we would allow for investments in diversified portfolios of Bitcoin, Ethereum, etc.?

Before we address the answer to those questions, let us discuss the possibilities for people who wish to include cryptocurrency in their own plans for retirement. This post will cover relevant topics such as

  • Investment vs. Speculation: Classifying Cryptocurrencies
  • Cryptocurrency in Retirement Portfolios
    • Bitcoin, Ethereum, Companies Benefitting from Cryptocurrencies
  • Risk Management in Retirement Savings
  • Thought Experiment 1: Environmentally Responsible Investing
  • Thought Experiment 2: What If Crypto Investments Become Institutionalized?

Investment vs. Speculation: Classifying Cryptocurrencies

GuidedChoice’s advice hinges on constructing investment portfolios that compensate for volatility with adequate expected returns. High volatility without corresponding returns can compound losses, eroding wealth. Diversification is key—it transforms a collection of individually unsuitable assets into a desirable portfolio with an averaged expected return and reduced volatility, aligning with GuidedChoice’s principle of avoiding excessive risk.

When assessing risk, the one-period efficient frontier helps estimate a portfolio’s expected compound return, which signifies growth over time through reinvestment at the same frontier point. However, as volatility increases, so does the challenge of compounding (Figure 1). A critical juncture exists on the frontier, marked by a star, where the expected return for a single period may continue to rise, but the compound return for multiple periods begins to diminish and can even turn negative.

Figure 1. Speculative assets make compounding more difficult

This diminishing section of the frontier is where speculation begins, often characterized by assets like single stocks, concentrated portfolios, and lottery tickets. The expected compound return, indicative of wealth growth over time, reaches its zenith at a specific volatility threshold. Beyond this, heightened volatility typically impedes a portfolio’s ability to recoup from significant losses, placing assets like cryptocurrencies squarely in the speculative category due to their inherent high volatility.

Thus, as solitary investments, cryptocurrencies fit well into the realm of speculative assets.

How Do You Value Assets with No Expected Cash Flow?

When an asset has no prospect to generate future cash flows, there is no cash flow stream to discount, so any price is just as reasonable than any other. Is Bitcoin overpriced at $60,000? At $600,000? At $6? There is no basis for saying one makes more sense than any other.

For centuries, a similar question has pertained to gold. At least gold has some use cases – you can use gold in jewelry, decorations, and possibly some commercial applications. However, nobody believes demand for these use cases drives gold’s price, which merely reflects the sentiment of the market.

Thus, while many proclaim Bitcoin is intrinsically worthless, none can say when the day of reckoning will come, and its price will go to $0.

At the same time, you must wonder: where will future demand come from that will propel Bitcoin’s price upward? Crypto in general and Bitcoin in particular are no longer obscure. Everybody in the developed world who wants to own crypto could do so. Plus, the environmental cost of Bitcoin would seem to limit additional demand. Bitcoin’s price inelasticity alone may yet continue to result in astonishing doubling or tripling of price in brief time spans, but that can go in two directions. What is harder to imagine is any more future exponential gains.

Cryptocurrency in Retirement Portfolios

Setting aside whether cryptocurrencies’ volatility makes them suitable investments on which to plan, obstacles lie before someone wishing to hold cryptocurrencies in their employer’s retirement plan. The Department of Labor (DOL) has made clear it does not regard cryptocurrencies as suitable assets for a plan menu1. What about via a plan’s brokerage window? The DOL has made clear it does not like that either, although some DOL watchers question whether it can impose such a constraint on brokerage windows. Stay tuned.

The path of least resistance for someone who insists on holding crypto in a qualified account probably is simply to hold relevant ETFs in an IRA.

My feeling is, just as they are free to spend money at casinos or on lottery tickets, people should be free to trade crypto with money they can afford to lose, not in retirement plans.

Investing in Crypto


Bitcoin’s volatility is legion. Additionally, it seems expensive to safeguard and transact. Whatever your feelings about its creators’ intent, Bitcoin’s price path seems like evidence not of inflation hedging but merely of speculation.

If you care about the environment, Bitcoin seems to be an investment you would avoid. Given its nature as an energy hog, and its lack of many use cases or any intrinsic value, it is difficult to be optimistic about Bitcoin.

Ethereum is environmentally friendlier than Bitcoin and seems to have real world use cases other than speculation. Ethereum and other proof of stake cryptocurrencies might turn out to have more longevity than Bitcoin.
Companies Benefitting from Cryptocurrencies

An adage about speculative asset manias is, “When there is a gold rush, sell shovels.” How might you sell shovels in the crypto gold rush? Some ways include investing in

  • Crypto exchanges
  • FinTech and Crypto tech firms
  • Cybersecurity firms
  • GPU manufacturers

(Again, not investment advice!)

Realize it or not, you almost certainly already invest in these. ETFs and mutual funds abound that invest in firms fitting these descriptions. Any S&P 500 Index Fund ETF or mutual fund invests in such companies. That is part of the magic of responsible retirement investing: if you just buy the market instead of trying to outsmart it, you will wind up owning whatever winds up being in favor.

Risk Management in Retirement Savings

The key to retirement investing is balancing risk. The saying ‘dosis sola facit venenum’ (the dose makes the poison) is particularly relevant for volatile assets. When investing for retirement, combining risky investments in a way that significantly reduces overall volatility can transform otherwise unstable assets into a robust portfolio, appropriate for retirement planning.

So, is it plausible that, by including a small enough dose of cryptocurrencies in a retirement portfolio, an investor might enhance the performance of his retirement nest egg? Theoretically, yes.

However, another adage I believe is, “if you’re not rebalancing, you’re not diversified.” Rebalancing when ETFs are involved is straightforward, but if you managed to invest in spot cryptocurrency it would seem to be unwieldy to rebalance stock and bond funds with your crypto wallets, wherever you hold them.

Thought Experiment 1: Environmentally Responsible Investing

What about people who wish to invest in their retirement savings consistently with their concerns about the environment but also wish to invest in crypto?

Without advising them to invest or crypto or not, I encourage them to investigate spot Bitcoin ETFs instead of owning/trading spot Bitcoin itself.

Thought Experiment 2: Crypto Investing Becoming Institutionalized

Due to a surge in energy prices and of other commodities just prior to the Great Financial Crisis, financial companies raced to introduce commodity price indexes and funds linked to them. Money poured in.

Instead of commodities remaining a portfolio diversifier, returns to commodity strategies became correlated with stock market returns. The story then was that the convergence in return patterns was caused in part to commodities having become “institutionalized.” With commodity investments more readily available via funds, the same investors saving into stock index funds were simultaneously buying shares of commodity funds. Thus, the correlation rose.

Could that happen with crypto? Fidelity and BlackRock, among others, have been positioning themselves to be ready to accommodate growth in investor flows to crypto investments. Even if the DOL continues not to permit crypto in employer plans, pension funds, endowments, and individuals may find other ways to include crypto in their portfolios.

Would becoming “institutionalized” make crypto more appealing, or less?


Conventional funds and ETFs exist that invest in spot cryptocurrencies, cryptocurrency futures contracts, and other blockchain and crypto-centric businesses, although we do not allocate to them in our clients’ portfolios.
If you already own index funds or target date funds in your retirement portfolio, guess what: you already participate in the cryptocurrency business, through your indirect holdings in Nvidia, Coinbase, etc.
If you are a skeptic of traditional investments and retirement advice, good for you for making it this far! Anyway, you probably dismiss our posture of just using money you can afford to lose on crypto. However, given how much the DOL opposes crypto assets in retirement plans, if you want to hold some for retirement, for tax reasons your most practical method is probably to use a buy and hold strategy in a brokerage account that does not charge you too much. (Not investment advice!)

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