Bitcoin enthusiasts may stack sats, farm yield and refuse to sell their BTC. But does strong conviction in the cryptocurrency justify relying on it to fund retirement?

Jonathan Parker, an MIT finance professor whose research covers portfolio choice, personal finance, retirement finance and Bitcoin, offers a blunt answer. He says the appropriate level of crypto exposure in a diversified retirement portfolio may be “Yes, zero.”

Parker’s view is shared by many Americans. A survey by the National Institute on Retirement Security found that 77% of Americans consider cryptocurrency in workplace retirement plans risky.

At the same time, regulators and investment firms have gradually opened the door to greater crypto exposure in retirement savings. BlackRock says a 1%-2% Bitcoin allocation can be reasonable in a diversified portfolio for investors who can tolerate the risk. Fidelity says allocations of 2%-5% could improve retirement outcomes. A smaller position may provide exposure to Bitcoin’s volatility while limiting potential losses.

That raises a broader question: Can someone believe Bitcoin is the ultimate form of sound money, or that Ether will become the future of finance, while still deciding that retirement savings are better kept away from both assets?

Bitcoin is entering retirement portfolios

Ryan Firth, founder of Mercer Street Personal Financial Services and a financial planner specializing in digital assets, views Bitcoin as an asset that can sit within a conventional portfolio rather than as a stand-alone retirement bet. He says BTC could potentially replace part of a stock allocation instead of simply being added on top of existing investments.

“Bitcoin offers higher return potential than stocks but with more volatility,” Firth told Magazine.

His general rule is that crypto assets should account for no more than 5% of an investor’s investable assets. He added: “The conservative approach is to invest only what you are willing to potentially lose.”

US lawmakers have pushed back on Labor Department plans to include crypto in 401(k) plans, underscoring the continuing debate over how digital assets should be used in retirement accounts.

Retirement funds are taking positions themselves

Although many individuals view the crypto industry as too risky, institutional investors have also sought exposure to it. Public filings show pension funds and other large investors holding regulated spot Bitcoin exchange-traded funds, while some have gained exposure through publicly traded companies closely connected to the sector.

CalPERS, the largest public pension fund in the United States, disclosed an investment in Strategy, the largest corporate Bitcoin treasury holder, as part of its index-oriented public equity portfolio.

CalSTRS, the largest educator-only pension fund, told Magazine that it has not made direct investments in cryptocurrency. However, it has invested in companies that “some might consider crypto companies,” including Coinbase, “a publicly traded company that operates a cryptocurrency exchange platform.”

The distinction is important. These institutional investors are seeking exposure to the growth of the crypto industry rather than necessarily treating Bitcoin itself as a core retirement asset.

Retirement portfolios have a different purpose

Bitcoin’s frequent drawdowns and yearlong bear markets can make it difficult to hold for people nearing retirement or already relying on their savings. For younger investors, a drawdown may be a temporary setback within a broader uptrend. For retirees, spending from savings that have fallen substantially in value can magnify the damage.

BlackRock’s portfolio research recommends an allocation of up to 2% to Bitcoin for investors who can tolerate the risk.

Bill Bengen, the financial planner and researcher whose work led to the widely cited 4% retirement withdrawal rule, says capital preservation should be the “primary priority” for retirement portfolios. Although volatile assets such as Bitcoin “can be useful,” he told Magazine that he recommends limiting them to no more than 5% of a retirement portfolio to “help prevent a disaster.”

For Firth, the issue is not only whether Bitcoin might eventually recover after a decline. It is also whether an investor can afford to wait for that recovery without abandoning a retirement plan.

“Will they stay invested and avoid a knee-jerk reaction when prices inevitably fall? [...] What if crypto goes to zero? How would that disrupt their plans and what’s their backup plan?” he said.

What if the investment thesis is wrong?

Even committed Bitcoin HODLers may ask how much of their future should depend on a single investment thesis proving correct. The risks are not limited to price volatility. An investor could also consider the possibility that Bitcoin is affected by quantum attackers or that a superior technology is developed.

Bengen noted that many people believe artificial intelligence is in a bubble. “Bubbles eventually pop. The same could be said for Bitcoin,” he said.

The concern applies to any retirement strategy built around a high-conviction investment. Conviction can support a decision, but it does not eliminate the possibility of being wrong.

Parker says investors should not hold cash in retirement accounts, and he also argues against holding peer-to-peer digital cash in them.

“Currencies are for transacting, not investing. Bitcoin is no different. People should invest in real assets that pay interest, coupon payments, or dividends,” Parker said.

He added that investors who want exposure to the success or failure of the crypto industry should consider the equity or debt of companies that generate revenue from it, rather than holding Bitcoin itself.

Belief in crypto does not require betting retirement savings on it

Keeping retirement savings out of Bitcoin does not necessarily indicate a lack of confidence in the cryptocurrency’s long-term prospects. Investors do not have to choose between believing that crypto will shape the future and treating it as a speculative asset that has no place in a serious portfolio.

As Firth put it: “It doesn’t have to be an all-or-nothing proposition.”

Someone can believe that crypto will change the world without making their retirement depend on that belief being correct.

Cointelegraph’s original article