Cryptocurrency - A retirement plan for the future?

As emerging technologies and corporations move us towards a more digitalized world, the ways in which we invest and spend money are also drastically changing. The old approaches to investment have shifted, and now millennials and Generation Z are more interested in investing in their future in what is perceived to be a more logical and practical manner, and this means preferring to invest in digital money for the long run. Enter cryptocurrency, that’s to say any form of currency that exists digitally and uses cryptography to secure transactions, stored in digital wallets and be accessed with a private key either through online software or via a physical device. So, one might ask how cryptocurrency can be a viable option for retirement plans and whether or not this is safe to invest in? Here are three points to consider:

1. Good return on investment  

Gone are the days when you could expect to retire at the age of 60 and then plan about the future. Nowadays, people are working smart and are, more importantly, investing smartly so that they can gain maximum benefits at an earlier age. Young investors are stocking up on  popular cryptocurrencies like Bitcoin and Ethereum as their retirement savings, seeking digital solidity in order to gain post-retirement benefits. However, unlike other retirement savings plans, cryptocurrencies can provide not only dividends but also benefits through their price appreciation. Crypto can be traded at any time, unlike stocks traded only during business hours; and while stocks are directly subject to inflationary pressures, crypto can be a hedge against it. Millennial investors looking for early retirement investment opportunities are in a position to bear the effects of depreciation and upswings, in the short to longer-term, if they are still minimally market-oriented. Additionally, keeping your investment eggs in a single basket is risky. Adding crypto to your investment portfolio helps to diversify it. However, It is important to choose only those cryptocurrencies which have long-term potential like Ethereum and Bitcoin. 

2. Value Storage Asset 

Cryptocurrencyhas become more than just a digital currency. It has gained massive growth as an asset in recent years.Prominent wealth investment firms are developing crypto-based loan products which cater  to everyone and not just to institutional retail  investors. Along with this,Cryptocurrencies are also being viewed as a value storage asset and a hedge against ever-rising inflation. According to research by popular cryptocurrency exchange KuCoin, 27% of Americans between the age of 18 to 60 years have either owned or traded in cryptocurrencies for a periodof half a year. Cryptocurrencieshave seen massive growth and have been wholesale adopted by certain countries, such as El Salvador ”,” which has even made them legal tender.Other countries may follow El Salvador’s lead and also opt to legalize crypto.  

3. Stability 

Corporations and individuals have seen the prices of cryptocurrencies skyrocket in the past few years, and this could be a prospective wealth-building opportunity. To boost cryptocurrency usage, companies have started adding cryptocurrency retirement plans for their employees. According to Congressional Research Service, Fidelity Investments, an American financial services company, has allowed users to allocate 20% of their retirement savings to Bitcoin-backed investments through their 401(k) retirement accounts. These are employer-sponsored retirement plans which enable employees to make contributions. Many corporates taking this as a viable example have followed suit. Cryptocurrencies may provide stability in case a country’s physical flat  currency loses its purchasing power in the global marketplace. Despite the hesitation and criticism, cryptocurrency has a high demand in the market. Presently, it has a valuation of more than USD 1 trillion,with morethan20,700cryptocurrencies available for investments, trading across 520 different exchanges.  Besides mainstream cryptocurrency trading, multiple new and unique investment options have emerged, such as metaverse, non-fungible tokens (NFTs), Web3, Defi, and stable coins, all available in the market for potential  retirement savings for the future. 

Takeaway

Acryptocurrency can be a viable option for retirement planning. However, when thinking  of the future, one must always take into consideration their age, disposable income, and  the acceptable level of risk  investing in cryptos. Unlike traditional stocks, the general lack of regulation around crypto creates uncertainty, which in turn underlines a potential  vulnerability.  So, play it smart, make crypto a smaller part of your retirement plan as opposed to the primary focus. Follow a buy-and-hold strategy to counter potential fluctuations and remember that, digital investment or not, crypto is also open to prying eyes.  Keep crypto in an offline or hardware wallet in order to prevent it from malware or hacking attacks.

For an extensive overview of crypto (together with Blockchain and Web3), check our series of articles starting here.