Bitcoin for retirement provision? Five reasons against it

Last update: 17.09.2024 08:31

Thinking about Bitcoin for retirement savings? Bitcoin has attracted a lot of attention in recent years. Bitcoin is now also seen as a good investment option for old-age provision due to its constant all-time highs. Really now? Discover five important reasons why Bitcoin may not be a good idea for retirement provision in this article.

Crypto-assets, such as Bitcoin, are digital goods based on blockchain technology that can fulfill various purposes. However, despite its popularity and consistently high price gains, there are important reasons why we don’t think Bitcoin is a good choice for your retirement savings. In this article, we explore these reasons in detail.

Bitcoin (BTC) is known for its large price fluctuations. In technical terms, this is known as volatility. A drawdown, i.e. the maximum loss in value until the original value is reached again, of 50 % frequently occurs with Bitcoin. Are you still sleeping so easy-peasy then? Of course, there have been exceptional years with returns of 150% (2023) or 300% (2020). But as rocket-like as Bitcoin’s rise was, the crashes were just as painful: around 2022 and 2018, Bitcoin fell by 64% and 74% respectively. Losing thousands of dollars per BTC in a few weeks is not for the faint-hearted. Are you Mr. or Ms. Steel and can sit out such losses? 🪨

When it comes to investments, there is not always a clear dividing line between investment and speculation. While some investments focus on future value creation, other investments tend to follow the Greater Fool theory – you hope that someone else will pay more for it later than you. And bitcoins – like gold – therefore tend to belong in this category in our view. Because unlike bonds, real estate or equity investments, they don’t work for you and don’t generate any returns. If nobody wants more bitcoins, the price party is over. 🎉 There is nothing behind Bitcoins. No real equivalent value. When fears arise of (take your pick: Bankruptcy of a crypto exchange, crypto bank, news of a tech billionaire or on regulation, etc.), prices can plummet quickly and dramatically – or rise. Are crypto-assets merely speculative or do they really represent a disruptive renewal of the financial system and create value? We believe they lie in the gray area between investment and speculation. Depending on how you read it, more there or there.

The fact is: the recent “crypto winter” (November 2021 to November 2022) shows us that the value of Bitcoin is extremely volatile. This brings high volatility and (book) losses to your portfolio. The high volatility makes it difficult to view Bitcoin as a long-term investment for retirement planning.

Some cryptocurrencies (such as Bitcoin) are designed in such a way that their quantity is limited, which could make them resistant to inflation. As a result, they could increase in value over time due to scarcity and offer protection against inflation “as digital gold”, so the argument goes. But: firstly, the last halving in April 2024 only reduced the amount of new bitcoins paid out to miners as a reward for mining new bitcoins. ⚒️ And secondly, this scarcity argument also applies to shares in real, value-creating companies, which often even pursue buyback programs and thus increase the value per share by reducing the number of shares in circulation.

The fact is: In 2021, inflation rose significantly in many countries, while Bitcoin showed no significant countermovement. On the contrary, as central banks raised interest rates to combat inflation, Bitcoin fell by 77% during the crypto winter. This suggests that Bitcoin is not as effective a hedge against inflation for retirement savings as some claim.

Bitcoin is repeatedly presented as a diversification instrument for other asset classes. In fact, the risk/return potential of a portfolio can be improved by adding suitable investments. Unfortunately, this does not work with bitcoins.

A (new) coin whose mechanism is admired today may be a discontinued model tomorrow. Imagine you invested in a fund with the 10 largest cryptocurrencies by market capitalization in 2014. What has become of it? Deadcoins.com lists around 2,000 digital currencies that no longer exist. According to Coinmarketcap, only 3 of your top 10 picks at the time (Bitcoin, XRP, Dodgecoin) are still in the top 10 – only BTC remains at number 1. You can’t afford a total loss on a long-term investment for retirement provision. But with cryptocurrencies, this cannot be ruled out. That’s your biggest risk. If you still want to take the risk, please do. But please not “all in” and not “for longer” 😉

The fact is that cryptocurrencies have – so far – suffered even greater slumps in times of crisis than the volatile stock markets. During the Covid pandemic in 2020, Bitcoin experienced much sharper price declines than the stock market. It lost half of its value in two days. Bitcoin’s value also halved at the outbreak of the Ukraine war. Bitcoin therefore tends to behave procyclically. This increases the risk for your portfolio. For a stable retirement provision portfolio, however, you need broad diversification, an opposite movement to equity risk. Adding Bitcoin to your pension portfolio will not improve diversification – on the contrary.

Many investors today are no longer indifferent to what they finance with their money.“My money should do good – or at least no harm” is how ESG investing can be summarized. 🌍 However, the high energy consumption of Bitcoin and other cryptocurrencies is in stark contrast to the basic principles of sustainable investing. Investing in Bitcoin for retirement provision clearly contradicts ESG standards.

Because the fact is: Bitcoin’s annual energy consumption amounts to hundreds of terawatt hours. Do you really think this ecological footprint is justifiable?

Review: Who offers pillar 3a with cryptocurrencies?

finpension Bitcoin: the crypto pioneer of pillar 3a

With finpension Bitcoin, you have been able to invest 100% of your pillar 3a in Bitcoin since January 2024.
Investing in cryptos has been possible with finpension since 2021.
We check the offer.
Discover everything you need to know about finpension bitcoin in the article.

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VIAC Bitcoin: crypto precaution?

With VIAC, you can now invest in 100% Bitcoin in your pillar 3a.
The high price fluctuations make many people dream of quick money.
Do you need Bitcoin in your pension plan?

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Bitcoin and other cryptocurrencies are facing increasing regulatory involvement and possible restrictions. It is understandable that central banks and governments will regulate digital currencies more strictly and will not relinquish their monopoly on money creation and thus monetary sovereignty. 🏛️ If you ask me, stricter regulation will not be without consequences for the price trend. The long-term impact on the value of Bitcoin is unclear.

The fact is that many countries and central banks are taking measures to regulate trading in cryptocurrencies or even issue their own digital currencies (Central Bank Digital Coins, CBDC). These changes can affect the price development of Bitcoin and increase your risk.

While Bitcoin has historically delivered high returns and can potentially deliver positive performance in the future, there are important reasons not to use Bitcoin for retirement planning. The crypto winter of 2022 showed that crypto assets work neither as inflation protection nor as a diversification tool for your portfolio. Rather, a crypto addition substantially increases the return and risk in your portfolio, as a study by Morningstar has shown. With Bitcoin, you are making a bet on the future: “hey, tomorrow and (in 30 years) someone will surely pay more for my Bitcoin than I paid!” To make this bet, you are buying a digital asset that itself has no return. If that’s not a “principle of hope”. 🤷 Furthermore, investing in crypto assets contradicts responsible ESG investing.

The bull market in early 2024 will be fueled by technical cycles (the regular halving) and regulatory decisions (the approval of Bitcoin spot ETFs by the US Securities and Exchange Commission (SEC)). If you want to ride the crypto wave, we think you’re better off doing so with money you don’t need for your retirement. Then you also have the advantage that any price gains remain tax-free. After all, capital gains on pension assets are subject to capital gains tax.

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