Can You Count on Cryptocurrency for Retirement?

The following post was written and/or published as a collaboration between Benzinga’s in-house sponsored content team and a financial partner of Benzinga.

Photo: Finance Magnates

It’s no secret — cryptocurrency is entering the mainstream. Established organizations are beginning to accept digital assets as a form of payment. Reports say U.S. banks may soon be able to allow customers to buy, hold and sell Bitcoin through their existing accounts.

In the latest episode of the new normal, financial services companies are making it possible for everyday investors to add virtual currencies like Bitcoin by rolling out products marketed under the name “crypto individual retirement accounts (IRA)” and “Bitcoin IRA.”

Crypto IRA falls under the umbrella of self-directed IRAs, retirement accounts that allow you to invest in alternative assets like cryptocurrency, real estate and physical gold.

According to CNBC, there has been an increasing number of investors banking on a Bitcoin IRA instead of Social Security. 

Crypto’s furious run leaves Americans wondering: Could this rising asset class be the path to retirement?

The short answer is that crypto can play a part in your overall retirement plan but not the entirety. Here’s why.

Significance of Crypto in a Retirement Plan

To understand what crypto brings to the table, it’s important to understand why you’re doing it in the first place.

The reason you are investing for retirement is that you plan to call it quits at some point and feed off a lump sum — more than what you would get if you stashed money in a savings account.

But investing comes with a certain level of risk, and you simply cannot afford to risk losing your retirement fund. Most financial planners and advisors will tell you to diversify your investment portfolio to mitigate risk. The old saying, “Don’t put all your eggs in one basket” didn’t come from retirement, but it’s still a good rule of thumb.

Most assets typically include stocks, bonds, certificates of deposits and exchange-traded funds. But in the event of an economic market downturn, the inclusion of digital assets like cryptocurrencies will be helpful as it has a low correlation to economic data.

A bonus benefit of having crypto in your retirement portfolio is its tax advantages. The tax-advantaged crypto IRA accounts alleviate the burden of paying capital additional costs stemming from capital gains taxes. This way, you can save on taxes and benefit from the compounding growth of your assets.

Apart from being a risk-mitigator and having tax-saving benefits, the most significant upside of crypto in your retirement portfolio is not so much to convert it to dollars after a long period of time but to use it in the age of decentralized finance (DeFi).

In the short term, crypto is considered a way ppto make a quick buck. But the real goal is to completely change financial transactions as we know it — borderless, transparent, accurate and quick. Over time, if DeFi plays out on a global scale, cryptocurrency could be the default value system of the world.

What’s the Catch?

Crypto IRAs do paint a good picture but there are some caveats.

Unlike traditional IRA accounts, crypto IRAs accumulate fees. The average crypto IRA will have a holding fee, minimum monthly account fee, establishment fee and fees for purchasing assets and fund transfers. Additionally, crypto IRAs can only be traded during standard market hours, which significantly change the IRA value over a weekend.

Crypto is also highly volatile — the price it pays for its limited supply and its lack of a central bank. If you’re close to retirement, consistency is critical. For this reason, it may be unwise to put all your funds into a crypto IRA.

To combat volatility, you could consider depositing your crypto assets in high-interest-earning accounts such as Hodlnaut. With Hodlnaut, you can earn up to 12.73% annual percentage yield (APY) on your deposits. The interest is compounded and paid out weekly. Think of it as receiving regular dividends as a form of recurring income.

Bottom Line

Here’s the deal — if you’re investing for the long haul, you’re going to want to bet on investments with potential but also diversify your portfolio so you’re not devastated by losses. Crypto can help with that. But, if you’re counting only on crypto to make you rich when you retire, it’s like playing the lottery.

If you deposit your crypto assets in interest-earning crypto accounts like Hodlnaut, you may be more confident investing in crypto as you see immediate returns that would compound over time. By doing so, you can diversify your crypto assets, and your crypto IRA accounts won’t occupy a disproportionate ratio in your retirement portfolio.

The preceding post was written and/or published as a collaboration between Benzinga’s in-house sponsored content team and a financial partner of Benzinga. Although the piece is not and should not be construed as editorial content, the sponsored content team works to ensure that any and all information contained within is true and accurate to the best of their knowledge and research. This content is for informational purposes only and not intended to be investing advice.