Earlier this year, I posted about the pros and cons of including cryptocurrency, such as Bitcoin, in your retirement portfolio. The greatest argument against cryptocurrency as a retirement investment is that its inherent qualities will preclude any country from adopting it as a mainstream currency in the long run. The reasons why? Cryptocurrency is deflationary and interferes with countries’ monetary policy.
Why cryptocurrency is deflationary
You might ask “If inflation is bad and deflation is the opposite of inflation, then deflation must be good, right?“. It is not even close, deflation is much worse than inflation. On the surface, deflation sounds like it ought to be desirable – over time, the cost of goods and services falls and everything gets cheaper. But hidden behind that statement are implications that can wreck a country’s economy and bring misery to consumers.
Let’s use Bitcoin as an example of a typical cryptocurrency. Bitcoins are created by “miners” who use powerful computers to create blockchains by solving complex mathematical problems. But there is a limited number of Bitcoins that can be created – 21 million. As of this year, 96% of these have already been “mined”, leaving less than 1 million left to be mathematically discovered. Every year, it gets harder and harder to mine the remaining Bitcoins and it is projected that all of them will be mined by 2140. After that, no more Bitcoins will exist to be generated and put into circulation.
But Bitcoins get lost. A Bitcoin is simply a long number and to store a Bitcoin, you either have to write that number down on a piece of paper or store it on a computer somewhere. Inevitably, people lose their Bitcoin numbers. Maybe a Bitcoin owner loses the piece of paper that the Bitcoin number was written down on. Maybe their computer is stolen or destroyed in a house fire. Maybe the Bitcoin owner dies without telling anyone where the Bitcoin number is hidden. Presently, it is estimated that between 11% and 20% of Bitcoins have already been irretrievably lost. Once lost, those Bitcoins cannot be re-mined. They are lost forever and thus the number of circulating Bitcoins progressively falls.
Paper currency does not have this problem. Every year, millions of $1, $5, $10, $20, and $100 bills are accidentally burned, torn, or misplaced. Nickels, dimes, and quarters are accidentally thrown away, lost, or damaged. This poses no problem for the U.S. government – we simply print more dollar bills, keeping the total amount of U.S. currency in circulation constant.
But as the number of new Bitcoins mined each year continues to fall and some Bitcoins are inevitably lost, the Bitcoins remaining in circulation become more and more valuable since there are less and less of them. The result is deflation – a car costing 1 Bitcoin today might cost 0.9 Bitcoin tomorrow. Sounds great, right? Wrong – it also means that a worker getting paid 1 Bitcoin per month in wages will only earn 0.9 Bitcoin the next month.
When an economy undergoes deflation, consumers hold off on making purchases, anticipating that their currency (in this case a Bitcoin) will buy more in the future than in the present. This suppresses consumption. As consumer consumption falls, demand for goods and services fall and producers have to start laying off workers, leading to rising unemployment. It gets worse because during deflation, investors start hoarding currency because it can increase in value faster than other investments, such as stocks and bonds. Deflation would thus take even more Bitcoins out of circulation, causing a spiral of worsening deflation and negative economic growth.
Cryptocurrency subverts a country’s monetary policy
One of the advantages of cryptocurrency is that it avoids manipulation by governments. But this is also one of its liabilities. Central banks, such as the Federal Reserve, adjust interest rates and money supplies in order to combat inflation and unemployment. Because cryptocurrency, such as Bitcoin, is decentralized, adoption of a cryptocurrency as a national currency would strip the ability of that country’s central bank from adjusting interest rates to increase or decrease the money supply. This essentially makes central banks impotent to fight inflation or to prevent recessions. So, if there are supply chain disruptions, such as occurred with shipping during at the beginning of the COVID pandemic, or oil transport disruption such as occurred during the U.S.-Iran war, then the Federal Reserve would be unable to raise interest rates to prevent runaway inflation. No country (or group of countries in the case of the European Union) wants to give up its autonomy over its internal monetary policy.
High transaction fees
For blockchain-based cryptocurrencies to function in a transaction, there has to be a large network of independent computers that compete to validate a transaction involving a particular cryptocurrency unit by solving a complex mathematical puzzle. Once a computer on the global network solves the mathematical puzzle, other computers on the network must then confirm the validity of the transaction. Only then is, a new block is permanently added to that cryptocurrency unit’s blockchain and the transaction is completed. The computers on the global network are called miners, because they also solve mathematical puzzles to discover or “mine” new cryptocurrency units. These miners make money by selling their newly mined cryptocurrency and also by charging a transaction fee when validating every cryptocurrency transaction.
Transaction fees are not new. Every time you buy something using a credit card, the person selling that something has to pay the credit card company a percentage of that transaction, typically 1.5% to 3.5%, depending on the specific credit card. Retailers detest these transaction fees because they significantly increase their overhead expenses. That is why many small business owners accept only cash and do not accept credit cards. That is also why many businesses charge customers 2.5% or 3% more if they use a credit card.
Unlike credit card fees, Bitcoin transaction fees are paid by the buyer, not the seller. Also unlike credit card fees, Bitcoin transaction fees are a fixed amount, rather than a percentage of the transaction. Bitcoin miner transaction fees vary depending on how busy the miner network is that moment and the amount of data in that particular Bitcoin transaction. In general, the transaction fees range between $0.20 and $2.00. So, if you are paying your $1,500 monthly apartment rent in Bitcoin, that transaction fee is inconsequential. But if you are paying for a $2 coffee at your local coffee shop, the transaction fee can double the price of a cup of coffee. Moreover, you won’t know what the transaction fee is until after that transaction is completed.
For small purchases, cryptocurrency is simply untenable.
No currency is perfect
Over the centuries, humans have used all sorts of things as currency – salt, cowrie shells, squirrel pelts, for example. The United States printed silver certificates until 1964 – these were paper currency used in circulation that could be exchanged with the U.S. Treasury for a defined amount of silver bullion. In 1973, the U.S. went fully off the gold standard when Richard Nixon permanently revoked the ability of banks and foreign governments to convert U.S. dollars into gold bullion.
At present, the most important currencies are the U.S. Dollar, European Euro, Japanese Yen, and British Pound. But national currencies have their own drawbacks. Countries can manipulate their currencies by depressing their value in order to make their exports cheaper, as China did in 2019. Countries can simply print too much currency, as post-World War 1 Germany did resulting in hyperinflation in 1923 with prices doubling every few days. Currency crises can result when investors lose confidence that a country can maintain a fixed exchange rate, as happened in Argentina in 1998 following years of budget deficits, corruption, and governmental economic mismanagement.
Even the venerable U.S. Dollar is susceptible to losing its prominence as the world’s currency standard because of the threat of the Federal Reserve losing its independence from political pressure and because of the threat of our rising national debt. Nevertheless, the downsides of cryptocurrency are overall more hazardous than the downsides of national currencies.
So, what about your investment portfolio
Bitcoin is not going to go away in the near future. It is untraceable, transferable with a computer mouse click, easily moved from one country to another, and totally anonymous. It will remain the currency of choice for money launderers, kidnappers, scam artists, and drug cartels. It is also currently fashionable as currency for tech bros who feel avant-garde paying for stuff with Bitcoin the way their parents felt when flashing their American Express Platinum credit cards.
But a country would have to be completely nuts to adopt Bitcoin as its main currency. It would be economic suicide. Because of this, it is extremely unlikely that Bitcoin will be a future mainstream currency. And Bitcoin is not alone – there are currently about 30,000 different active cryptocurrencies that have been created on blockchain networks. One of the most notable is $TRUMP, a cryptocurrency and World Liberty Financial, a crypto platform, both created by the Trump family when Donald Trump was inaugurated for his second term in presidency. By selling World Liberty Financial tokens and $TRUMP mime coins to foreign governments and others seeking political favors, Donald Trump and his family personally made over $2 billion last year. It is unlikely that there will be much of a market for WLF tokens and $TRUMP mime coins when Mr. Trump’s term ends and he no longer welds the economic and political power he currently has.
Past generations have bought up Beanie Babies, Cabbage Patch Kids, Hummel figurines, and holiday Barbie dolls in expectation of their increasing in value in the future. Today, these “investments” are practically worthless. Many of today’s highly sought cryptocurrencies are destined for the same future fate as Beanie Babies. So, before you invest in a cryptocurrency as a part of your retirement portfolio, think about whether that cryptocurrency will realistically be used in the future as a mainstream currency to purchase goods and services. If it won’t be, then in 30 years, your retirement portfolio will consist of a bunch of worthless numbers, like a vault full of Beanie Babies today.
Personally, I do not believe that cryptocurrency will be widely used as mainstream national currencies and for that reason, I do not believe that cryptocurrency will hold its value as a long-term investment. That is why I do not have cryptocurrency in my long-term retirement portfolio.
June 19, 2026
