Cryptocurrencies, such as Bitcoin, have been getting a lot of attention as investment options recently. But should you add cryptocurrency into your retirement portfolio? Financial advisors often recommend a 5 group diversification strategy for retirement investments: (1) U.S. stocks, (2) foreign stocks, (3) U.S. bonds, (4) foreign bonds, and (5) real estate. Instead of buying individual stocks, individual bonds, and individual real estate properties, most investors opt for stock mutual funds (or ETFs), bond mutual funds, and real estate investment trusts (REITs). Many investors are now questioning whether they should add cryptocurrency as a sixth group.
So, what is cryptocurrency really?
Cryptocurrencies are digital currencies that are contained on networks of computers using a public ledger technology called blockchain. Transactions involving cryptocurrency is recorded in digital “blocks” that are attached to previous blocks of transactions resulting in a chain of blocks that represent the chain of custody of that particular cryptocurrency, for example, a bitcoin. The blockchains cannot be altered but each transaction must be validated by computers on the blockchain network called “miners”. Once the transaction is validated, that transaction block is added to the blockchain and the cryptocurrency then transfers to its new owner.
When you invest in a stock, you buy part ownership in a company. When you invest in a bond, you buy part ownership of a loan to a company (or a loan to a government). When you invest in gold, you own metal that can be converted into jewelry or electronics. But investing in cryptocurrency is like investing in any kind of currency: U.S. Dollars, British Pounds, Euros, Yen, etc. The difference is that U.S. Dollars are backed by the “full faith and credit” of the U.S. government. Similarly, Pounds are backed by the British government and Euros are backed by the European Union government. Cryptocurrencies are not backed by any government or anybody. They are simply strings of computer code that a lot of people have decided to use as money.
The value of any given nation’s currencies is based on the general perception of the strength of that nation’s economy. In turn, that perception is based on such metrics as that nation’s inflation rate, interest rates, GDP, government debt, trade balance, and central bank monetary policies. An advantage of cryptocurrencies is that they are not regulated by any government and are thus immune to government interventions. Additionally, they are decentralized, thus allowing for rapid transfer of money, anywhere on the planet. For these reasons, many people have embraced cryptocurrency as the future medium of exchange to replace currencies of individual countries.
Currently, cryptocurrency is used by 7% of U.S. adults for investment, 1% of U.S. adults for purchases (transactions), and 1% of U.S. adults to transfer money from one individual to another. Men are twice as likely to use cryptocurrency for transactions as women and the majority of cryptocurrency users are under age 60. Interestingly, low income adults making less than $25,000 per year are four-times as likely as middle income or high income adults to use cryptocurrency for transactions. On the other hand, high income adults are twice as likely as other income groups to buy cryptocurrency as an investment.
The problems of cryptocurrencies as retirement investments
As I see it, there are several reasons why investors should be cautious adding cryptocurrency to their retirement portfolios:
- Lack of precedent on long-term returns. A key factor in deciding whether to buy a particular investment is one’s investment horizon. The investment horizon is how long you plan on holding that investment before selling it. For example, saving for a down payment on a new car purchase in 6 months is a short investment horizon whereas saving for retirement 35 years from now is a long investment horizon. It would be imprudent to hold the car loan down payment exclusively in stocks because of the short term volatility of stocks. It would be equally imprudent to hold the retirement investment for 35 years exclusively in bonds because of the low returns of bonds in the long term. Bitcoin was first launched in 2009 and first used for an actual purchase in 2010. Thus, Bitcoin, and other cryptocurrencies, are very new types of investments. In the short time since that first cryptocurrency purchase, Bitcoin has increased in value from $0.30 per Bitcoin at the end of 2010 to $68,000 per Bitcoin today. This represents enormous short term returns. However, no one knows what the long term returns are going to be for Bitcoin and other cryptocurrencies. There simply is no precedent. Are cryptocurrencies a fad or are they the future of money?
- Short term volatility. Cryptocurrencies are unsuitable for short term investments given their volatility. In the past three and a half months (October 2025 to present), Bitcoin has lost nearly 50% of its value. Volatility is acceptable for investments held for long term but excessively risky when used for short investment horizon needs.
- Will cryptocurrency really be used as currency? When was the last time you bought a loaf of bread at the grocery store with Bitcoin? Or a hamburger at McDonalds? Or a tank of gas at an Exxon station? As with any kind of currency, its value is to be able to buy stuff and currently, cryptocurrency is rarely accepted as payment (unless you are a kidnapper, drug dealer, extortionist, or ransomware crook). Unless countries adopt Bitcoin or some other cryptocurrency as official legal tender, consumers are likely to prefer to use the national currency for most transactions.
- Cryptocurrency subdivisions are complicated. With a Bitcoin currently valued at around $60,000 per 1 Bitcoin, a pint of beer at your local pub would cost about 0.0001 Bitcoin. Americans are used to pricing in dollars and cents; Europeans are used to pricing Euros and cents; and British are used to pricing in pounds and pence. Would you prefer to see the price of a beer at $6 or at 0.0001 Bitcoin? Although there are Bitcoin denominations, they are foreign to most people: 1 Decibitcoin = 0.1 Bitcoin, 1 Centibitcoin = 0.01 Bitcoin, 1 Millibitcoin = 0.001 Bitcoin, 1 Microbitcoin = 0.001 Bitcoin, and 1 Satoshi = 0.00000001 Bitcoin.
- Cryptocurrency’s volatility creates excessive risk for retailers and consumers. The substantial daily and weekly swings in the value of Bitcoin and other cryptocurrencies creates enormous problems for those who sell goods and services. For example, let’s say you are a house painter and give a quote of 0.0452 Bitcoin to paint someone’s house but you are currently scheduling 2 months out. If the value of a Bitcoin drops by 20% in those 2 months, then you are going to lose money and go out of business pretty soon. On the other hand, if the value of Bitcoin increases by 20% over a 2-month period, then an employer who hires an employee with an annual contract to be paid 0.09482 Bitcoin each month could face an unsustainable increase in overhead expenses and go out of business. Retailers that carry an inventory of goods would need to change prices of goods on an almost daily basis to account for daily changes in the value of Bitcoin (i.e., the daily Bitcoin exchange rate). For businesses to be able to create workable budgets, they need to confidently predict the rate of inflation (or deflation) in the upcoming year. The same holds for individuals preparing household budgets. Volatility is a budget destroyer.
- Countries are unlikely to give up their own currencies. Governments like to control their own currencies. Great Britain refused to adopt the Euro even when it was part of the European Union. Similarly, Denmark and Sweden also have kept their own currencies rather than adopt the Euro. Each country’s central bank sets its own interest rates based on its own monetary policy. Each country has differing degrees of nation debt. Each country has different GDPs. Each country has differing economic performance, such as unemployment rates and productivity efficiency. Each country has different degrees of geopolitical stability,. And each country has differing trade balances. Because of these differences, the value of a Bitcoin or other cryptocurrency will vary from one country to another. In one country, a dozen eggs might cost 0.00001 Bitcoin but in another country, a dozen eggs might cost 0.000005 Bitcoin. By giving up its national currency, a country’s government loses economic control.
- Transactions take too much time. Cryptocurrencies can only reach maximum long term value if they become used as currency for most sales transactions. For Bitcoin transactions to be validated by miners and new blocks to be added to an existing blockchain requires about 1-hour on average. Each transaction requires multiple different miners to each perform independent validations. Each of those individual validations requires a great deal of complex computations. If the Bitcoin network is busy, there can also be long wait times in the validation queue that results in transactions taking several hours. In addition, each transactions results in a given blockchain becoming longer; as blockchains get longer, it takes more computer CPU to perform validation computations. This makes cryptocurrency, like Bitcoin, unsuitable for day-to-day transactions unless the cryptocurrency is associated with a credit card or a debit card.
- Cryptocurrencies cannot be used during power failures or internet outages. If there is a power failure after a storm or a hurricane, you can still buy supplies at your local hardware store using cash. If your internet service provider has an outage because a construction crew accidentally cut your regional fiberoptic cable, you can still buy a cup of coffee at your local coffee shop using cash. In fact, many small retailers only accept cash and do not accept credit cards because of their associated fees. Although the transaction validation fees charged by Bitcoin miners are relatively small, they can spike upward significantly during periods of network congestion. This could potentially result in dynamic pricing to accommodate these variable validation fees… and consumers do not like dynamic pricing, particularly for day-to-day purchases.
- Transaction validation uses an enormous amount of electricity. Currently, Bitcoin miners consume about the same amount of electricity as the entire country of Argentina every year. This electricity consumption will grow if more transactions occur every year. The only way to create this amount of electricity is to increase fossil fuel power plants or renewable energy sources. Many communities are already facing objections to building new data centers because of their excessive electricity consumption that increases the cost of electricity to everyone in the community. Limits on future electricity generation could pose a barrier to widespread adoption of cryptocurrencies for day-to-day transactions.
- If you lose your key, you lose your Bitcoin. The key is a 256-bit random number that functions as a “master key” or signature to unlock and spend your Bitcoin. It must be kept secret. If you lose that number, that Bitcoin is lost forever. If you store that number on a piece of paper in your home and there is a fire, you lose your entire investment. If that number is kept on your home computer and the computer is stolen, you lose your entire investment. If your number is hacked, you lose your entire investment. Stefan Thomas, a San Francisco programmer, famously lost a hard drive containing the keys for 7,000 Bitcoins – in other words, he lost forever the equivalent of $420 million. It is currently estimated that 20% of Bitcoin keys have been lost, essentially making those Bitcoins disappear. Bitcoins can be held in cryptocurrency exchanges, such as Coinbase, that offer a secure place to store your Bitcoin; however, exchanges charge fees for storage and transactions.
- Mainstream adoption of cryptocurrency is affected by politics. Political leaders can have a profound effect on whether cryptocurrencies become mainstream. For example, they can decide to accept a particular cryptocurrency as legal tender for paying taxes, paying for tickets to enter National Parks, etc. Conversely, politicians can deny mutual funds or ETFs from dealing in cryptocurrency. A single executive order can make or break a cryptocurrency,
The arguments for cryptocurrency as a retirement investment
For every ardent cryptocurrency skeptic, there is an equally passionate cryptocurrency advocate. Here are some of the reasons cryptocurrency proponents cite for why people should invest in cryptocurrency:
- The number of Bitcoins is capped. Currently, 19.9 million Bitcoins have been created. The maximum number that can be eventually mined is 21 million. That means that 95% of Bitcoins have already been mined. As a result, the more people use Bitcoins, the more valuable they become. It is sort of like the opposite of inflation – an automobile costing 1 Bitcoin today might cost 0.5 Bitcoin a year from now if Bitcoin replaces traditional currency. As the demand for Bitcoins increases in order to complete more and more transactions, then if there is a finite number of Bitcoins in existence, the value of each Bitcoin will rise. Because of this, the value of Bitcoin will steadily increase as it is used for more and more transactions.
- Over time, many Bitcoins are irretrievably lost. If you lose your bitcoin key, that Bitcoin is gone forever and no one will ever be able to use it. Just like pennies and dollar bills, over time, a certain percentage of them become lost and go out of circulation. Since there are a maximum of 21 million Bitcoins, as some Bitcoin keys are inevitably lost each year, there will be fewer and fewer Bitcoins in circulation, thus increasing the value of those remaining Bitcoins.
- Cryptocurrency cuts out the middlemen. An advantage of cryptocurrency is that it eliminates banks as middlemen for various transactions. In addition, cryptocurrency operates outside of government control, making it immune to monetary policy meddling by governments.
- It is taxed at your capital gains tax rate rather than your income tax rate. When you sell a Bitcoin, any profits you make are taxed at your capital gains tax rate, as long as you have held that Bitcoin for more than one year. For the vast majority of Americans, the capital gains tax rate is lower than their income tax rate. Unless you have a very low income or a very high income, that capital gains tax rate is 15%.
- It is extremely portable. You can take your cryptocurrency across national borders with ease. This makes it efficient for someone sending money back home to their family in Costa Rica and also makes it easy for someone fleeing the U.S. to move all of their assets out of the country without being taxed or having their accounts frozen.
- Diversification. The value of cryptocurrency is affected by different forces than those that affect the value of other investments, such as stocks or bonds. However, cryptocurrency is new enough that the factors that influence its value have not been fully determined. Nevertheless, it provides diversification that may protect investors during periods of stock and bond market decline.
So, what is a retirement investor to do?
The future value of cryptocurrency depends entirely on whether its use for transactions increases. If so, then the value of cryptocurrencies, such as Bitcoin, will increase and likely increase a lot. On the other hand, if cryptocurrencies fail to be used for future transactions, then they will have little or no future value. In that sense, buying and holding cryptocurrency is more speculation than investing. Cryptocurrency will either be a boom or bust as a long term investment. There are so many variables that will affect whether cryptocurrency goes mainstream that it is impossible to confidently predict the future of cryptocurrency. Twenty years from now, either cryptocurrency’s advocates or naysayers will be saying “I told you so” but no one knows which group it will be.
A third possibility is that cryptocurrency continues to be used for a some transactions and as a means of transferring money from one individual to another. In this regard, cryptocurrency is a great way to launder money if you are a criminal or to avoid taxes on money transfers if you don’t want the IRS to know about the transfer. It is far easier for a drug cartel to charge a few hundred Bitcoin for a shipment of cocaine than to try to figure out how to move a pallet of $20 bills across the border.
If you do decide to include Bitcoin or some other cryptocurrency in your retirement portfolio, it should be a relatively small percentage, 1% – 5%. If cryptocurrency has future widespread adoption, that small percentage will be worth a fortune in 10 or 20 years. If cryptocurrency does not become widely used for ordinary transactions in the future, then a total loss of only a small percentage of one’s investment portfolio will not result in a significant loss of one’s total assets. If Bitcoin does not go mainstream but continues to be used by drug dealers and ransomware criminals, then you probably won’t make a fortune on your Bitcoins but you probably won’t lose your initial investment, either.
February 22, 2026
