Crypto Retirement — A Personal Investing Guide
A new phenomenon that has increasingly gained traction lately is the notion of including crypto in retirement plans and allowing individuals to get exposure to cryptocurrencies like Bitcoin and Ethereum as they work towards early retirement.
This uptake in interest can be highlighted by an Investopedia survey in 2022, which showed that a third of investors under age 55 would have a significant focus on crypto during retirement. This can be further reinforced by the rise of crypto IRAs (self-directed individual retirement accounts), which have made real headway in the US.
However, unlike the US, the UK market is a bit behind in terms of crypto retirement savings plans, and there is less awareness of the different ways UK workers can include crypto in a self-made or readily-assembled retirement portfolio.
But not to worry. This guide will provide an overview of the benefits UK investors can potentially get by investing in crypto and will highlight the main options available to them in 2024.Let's dive right in!
The Benefits of Crypto Investing as a Retirement Plan Option?
Investing in cryptocurrency has an array of different benefits that make it a compelling asset class for a retirement plan. At the same time, because investing is still a speculative pursuit, there are also some risks that individuals, financial advisors and companies should be aware of before committing.
Let's first have a look at the benefits
Benefits:
1) Diversification
The first and most obvious benefit is the diversification that crypto investing can offer.
Because cryptocurrencies are a unique asset class that operates in a completely different way to traditional finance, they naturally offer exposure to new yield-generation mechanisms and technological value propositions. So by including crypto in a well-thought-out retirement plan or vehicle, investors can potentially reduce overall portfolio risk whilst also increasing the chances of potential returns.
2) High growth potential
The next possible retirement benefit is that some cryptocurrencies have demonstrated outstanding historical growth, with Bitcoin having even outperformed Gold in 2023.
This high growth potential, therefore makes them attractive from a long-term investment perspective. However, it is important to note that different cryptocurrencies have different risks and, therefore, should be balanced out in a way where there is no overexposure; yet enough to bring about possible returns.
3) Technological adoption potential
Due to cryptocurrencies being powered by the revolutionary and exciting blockchain technology, there is a lot of adoption potential; especially when it comes to things like smart contracts, AMMs, token infrastructure and zero-knowledge proofs; to name a few.
So the more these utilities are adopted, the greater the chance of their underlying tokens (or shares) increasing in price. This in turn benefits investors who have steadily invested into a diversified crypto retirement portfolio.
4) Hedge against inflation
As a result of cryptocurrencies (particularly Bitcoin) being decentralised in nature, and having a limited supply, many view this asset class as a new avenue for hedging against inflation. This provides a counterbalance to the devaluation that is usually found with fiat currencies as a result of constant money printing.
5) More flexible liquidity
Because there are no selling restrictions or select trading hours, it means that cryptocurrencies can be bought or sold 24/7, and on multiple exchanges around the world. So if a retiree has some of the top digital assets in their retirement plans, then besides the high liquidity found on the top exchanges, they will be able to access funds quickly if need be; or adjust their portfolio depending on the state of the market.
Risks you should be aware of
1) Volatility
Although there are enticing benefits that can be found by investing in cryptocurrencies, they also happen to be notoriously volatile, with price fluctuations often occurring within very short time periods. This is due to the crypto market's relatively small market caps (compared to traditional financial markets), meaning less trading volume is needed to create big price swings.
This naturally poses a significant risk, and therefore requires thorough research, planning and strategic allocations in order to reduce risk.
2) Regulatory uncertainty
The regulatory landscape for cryptocurrency is still developing and can vary significantly by country. Changes in regulations or a lack of clarity can impact market stability and the legal standing of certain crypto investments, which could pose risks to the retirement funds invested in such assets.
3) Security concerns
While blockchain technology is generally secure, crypto investments are susceptible to risks like hacking, fraud, and theft. Investors must be diligent in securing their digital wallets and choosing platforms that provide robust security measures to protect their assets.
Crypto Retirement Plan Options for UK Citizens
In the event that aspiring retirees are sold by the benefits of including crypto as part of their retirement plans, then they'll need to find a suitable vehicle for facilitating this.
Unlike traditional retirement vehicles like Self-Invested Personal Pensions (SIPP) and Individual Savings Accounts (ISA), the FCA has yet to regulate any crypto retirement products, making it harder for UK investors to partake.
The good news is that although there are no regulated crypto retirement products on offer for UK companies and individuals, there are alternative approaches that can be used for crypto retirement purposes. This is not investment advice, and should not be perceived as such. This information is solely for educational purposes, and readers should conduct further research after reading.
1) Crypto SSAS Pension
A Small Self Administered Scheme (SSAS) is a type of pension scheme that is designed for individuals (normally business owners or directors), and operates on a 'defined contribution' basis. Unlike a normal work pension, an SSAS Pension gives owners more control over investment decisions, which is particularly useful for incorporating assets such as cryptocurrency into the pension portfolio. However, with more control comes more responsibility, and so it is advisable to first consult with a financial advisor that specialises in crypto.
Due to the uncertain regulatory environment surrounding crypto in the UK, investing in crypto through an SSAS Pension can be complex, and there are currently not many providers. One example of a company that currently offers crypto SSAS pensions is Coinpass.
2) Dollar-Cost Averaging
Dollar-Cost Averaging (DCA) is an investment strategy that involves investing a certain amount of capital into a certain asset at regular intervals and with no regard for the short-term price of an asset. This approach aims to reduce the impact of market volatility on the overall investment cost.
With regards to crypto retirement, DCA can help to mitigate cryptocurrency's notorious price fluctuations. By regularly investing a certain amount at regular intervals, investors can obtain more crypto assets when the price is low. Over time, this approach can help to average out the purchase price, and potentially achieve a lower overall cost per unit.
3) Crypto Strategies
For aspiring UK retirees who are interested in incorporating cryptocurrencies into their retirement plans, allocating a percentage of savings to crypto strategies can potentially be a good way of doing this.
Platforms like ICONOMI offer a user-friendly interface where retirees (who are often less experienced investors) can automatically mirror the trades of more seasoned traders and investors; with just a few clicks. Many crypto strategies on the platform have a long-term outlook, and their historical performance can easily be seen on the dashboard.
So by signing up to ICONOMI, aspiring retirees can seamlessly put a percentage of their savings into a crypto strategy based upon past performance or crypto weighting and either leave it there to accumulate or to cash-out at opportune moments. By doing so, can reduce the stress, uncertainty and time that is normally needed when managing a complex crypto portfolio.
Conclusion
Whether you decide to include crypto in your retirement plan or not is a personal decision. Including crypto in your retirement plans while providing diversification, a hedge against inflation and high-growth potential also comes with potential volatility, regulatory uncertainty, and security risks.
As of right now, UK citizens have less regulated options compared to US citizens. However, as this article has shown, there are indeed ways to include crypto as part of a retirement plan, including Crypto SSAS Pensions, Dollar-Cost Averaging, and Crypto Platforms like ICONOMI. If navigated effectively, then there is a chance that these avenues can bring about a good ROI; increasing your savings for retirement. But as with any investment activity, nothing should be taken for granted, so it is advisable to invest only in what you can afford to lose.
Remember, this is for educational purposes only, so consult a financial advisor before making any investment decisions relating to retirement plans.
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