Are Cryptocurrencies Suitable For Pension Plans?

In response to the global challenge of an aging population, most countries and financial-savvy people are looking for additional opportunities to create and grow their retirement savings. 

Investing in cryptocurrencies and using crypto wallets as self-managed retirement accounts can be a value-adding option. However, it also comes with its risks and benefits.

The Essence of Crypto Explained Simply

Catching the essence of crypto can be challenging for people approaching the age of retirement. This is a technically difficult technology and not as usual as fiat currency.  Cryptocurrencies can be used for financial transactions within the blockchain network. Bitcoin BTC/USD and Ethereum ETH/USD are the largest two in market share. You can use them for either paying for goods or services (however, the available opportunities are pretty limited to date) or trade your cryptocurrencies, following the rule of “Buy cheap, sell high”. 

The latter idea also requires a deep understanding of the crypto market, along with the ability to predict trends and make well-weighted buying and selling decisions. 

The Benefits and Risks of Having Your Pension in Crypto

Despite some technical complexity, cryptocurrencies are attractive options to invest in and create an additional source of income. 

That’s why recently they are viewed in the context of retirement savings. 

Below are the main benefits and risks of keeping your self-managed retirement account in crypto. 

Pros

• The opportunity to diversify your portfolio. According to the latest research, 70% of elderly people in the UK plan to proceed with investing after retirement. From such a perspective, investing in crypto is an option to diversify your investment portfolio with a high probability of value-adding ROI. 

• Security. To date, the financial transactions carried out within the blockchain network are the most secured ones. They are also transparent and irreversible, while the crypto money is impossible to steal unless your crypto wallet password is stolen. 

• Performance: The leading cryptocurrencies by market capitalization — Bitcoin and Ethereum — have noted a strong market performance over the past few years. Bitcoin rose from being worth nothing to reaching an all-time high of over $68,000. Ethereum, with tokens sold through an ICO many years ago, has risen to an all-time high of over $4,000. More importantly, these two assets note the most substantial adoption among investors and institutions alike. Publicly-traded companies have begun creating Bitcoin Treasuries, confirming overall demand continues to rise. 

Cons

• High volatility. The value of a certain cryptocurrency is pretty difficult to predict since its price can change in an instant in response to even the slightest market or economic change. This is also the reason why investing in crypto is pretty risky compared to investing in more traditional assets like stocks or real estate.

• Technical complexity. Those approaching the age of retirement may find it difficult to understand the technical specifics of blockchain and the rules of the cryptomarket. However, 40% of millennials consider adding cryptos to their retirement portfolios, a worthy-follow strategy because of their higher risk tolerance compared to the older generation and tech-savviness. 

• Relative suitability for long-term investment. Blockchain is a relatively new technology, so it hasn’t proved itself as a long-term investment asset compared to traditional financial products. 

Additional Investment Opportunities to Consider for Retirement

Given the pros and cons of adding cryptocurrencies to your pension plan, such an investment strategy makes sense in the case when cryptos aren’t the only assets you invest in. 

Here are some additional investment suggestions to diversify your portfolio, in addition to buying cryptocurrencies:

• Stocks. Buying stocks is an ever-green, relatively low-risk, and well-proven strategy that you are welcome to follow when saving for your retirement account. The main rule is to buy the stocks of different companies to make the possible risk as low as possible. 

• Real estate. Investing in real estate is one of the most intuitive investment tactics. The main benefit of this strategy is that you can get rent fees in the long run and also bequeath your property to children and grandchildren. However, you should choose the property very carefully, following the advice of real estate investment consultants and carefully measuring all the KPIs and metrics. 

• P2P lending platforms. P2P investments are getting popular. According to research,  the P2P lending market is projected to reach $558.91 billion by 2027 (compared to $67.93 billion in 2019). P2P lending is a worth-considering alternative to the traditional banks which allows the investors to invest the sums they are comfortable with, and the borrowers — pay it off, avoiding the in-bank bureaucracy. P2P lending platforms also allow the investors to manage the risks by setting the interest rates. 

• Startups funding. There are a lot of promising startups to fund and get ROI in the case of the startup's success. While this investment is also risky and it requires being well-aware of modern tech trends, it can be an option for your portfolio diversification. 

Diversification strategy

Cryptocurrencies are relatively suitable for pension plans. Despite being well-secured, transparent, and almost non-taxable, they also come with high volatility and can hardly be the only option for long-term investment. 

Diversifying the investment portfolio and having other assets, in addition to crypto, would be a more winning tactic for those eager to take care of their retirement savings on their own and grow their income. 

Johnny Lyu is the CEO of KuCoin KCS/USD, one of the largest cryptocurrency exchanges launched in 2017. Before joining KuCoin, he had accumulated abundant experience in the e-commerce, auto and luxury industries.