It was first published Unchained.com.
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For beginners, especially those nearing retirement age, the idea of investing in or owning Bitcoin can provoke reactions ranging from skepticism to disbelief. However, if you look beyond the typical narrative, you may find that there is more to this story than first impressions suggest. Here are six reasons why you should at least consider owning some Bitcoin in retirement.
1. Bitcoin helps broaden your asset allocation base
Traditionally, investors use strategies such as: asset allocation Allocate your funds and protect them from investment risk over the long term. A sound asset allocation strategy is the antidote to putting all your eggs in one basket. There are several types of “classes” or categories of assets that spread risk. Typically, advisors seek to establish a dynamic mix between fixed income (e.g., bonds), equity (shares), real estate, cash, and commodities.
The more categories you employ to diversify your assets, and the less correlated those categories are, the more likely you are to balance risk, at least in theory. Recently, an unintended consequence of the aggressive expansion of social debt and the money supply is that previously uncorrelated assets are now decreasing. tend to act more kindly towards each other. Today, when one sector takes a hit, multiple sectors often suffer together.
Regardless of these current circumstances, asset allocation remains a well-thought-out strategy for mitigating risk. Although Bitcoin is still in its relatively early stages, it is an entirely new asset class. For this reason, owning at least Bitcoin is a good idea, especially for that reason. Distinct characteristics compared to other “cryptocurrencies”” provides an opportunity to expand your asset base and spread your overall risk more effectively.
2. Bitcoin provides a hedge against inflation and currency depreciation
As a retiree, it’s important to protect yourself from inflation to maintain your long-term purchasing power. In the asset allocation discussion above, we referenced the recent aggressive money supply expansion. Anyone who has lived a long life and is approaching retirement age knows that dollars can no longer buy the things they once did. When the government issues a large amount of new currency, degrade The value of dollars already in circulation. When newly created dollars begin to outstrip the existing, limited supply of goods and services, this generally causes prices to rise.
our own parker lewis I have covered this extensively in him gradually and suddenly series:
In summary, when trying to understand Bitcoin as money, start with gold, the dollar, the Fed, quantitative easing, and why the supply of Bitcoin is fixed. Money is not just a collective illusion or belief system. It has a rhyme and a reason. Bitcoin exists as a solution to the monetary problem that is global quantitative easing, and if you believe that the depreciation of the local currencies of Turkey, Argentina, and Venezuela will never happen to the US dollar or developed economies, then I we are simply located in different parts of the world. Same curve.
In contrast to fiat currencies, no one can increase the supply of Bitcoin or arbitrarily reduce the value of Bitcoin. There is no centralized authority that controls its monetary policy.in spite of argument againstAlthough Bitcoin is similar to gold, it is technically different as gold miners continue to increase the gold supply at a rate of 1-2% each year.
As Bitcoin is slowly introduced into the circulating supply (i.e. mining), its inflation rate will decrease and eventually stop. This fact makes Bitcoin uniquely rare among the world’s financial assets. Ultimately, this scarcity, along with Bitcoin’s other monetary properties, should protect its purchasing power. Therefore, owning Bitcoin in retirement provides a hedge against inflation.
3. Bitcoin offers an opportunity for asymmetric returns
Bitcoin’s ability to alleviate many of the challenges described here hinges on its ability to achieve asymmetric returns. Its supply is fixed (there are only 21,000,000 Bitcoins) and the demand for this asset is steadily increasing. As this limited supply collides with increasing adoption of stores of value by individuals, institutions, and governments, Bitcoin has the potential to dwarf the returns of nearly every competing asset class.
It’s worth noting that holding Bitcoin for the long term generally improves your returns. In modern times, it is increasingly common for retirement to last several decades or more. Over such a period, even a limited allocation to Bitcoin provides ample opportunity to benefit from its upside potential. All you need is time to ride out short-term volatility. This is contrary to common belief; Not evidence that it is a poor store of value.
Sequestering a portion of your funds just for retirement appreciation goes somewhat against conventional wisdom. Modern retirement plans typically optimize the liquidation of portfolio funds to generate income. But setting aside a small amount of Bitcoin, kept tightly gated from funds designated as an income source, opens the door to monetizing the limited supply of Bitcoin and making a profit.
4. Bitcoin protects against long-term bond risks
Traditionally, high-grade bonds held directly or as fund shares are An important part of most retirement portfolios This is because the risk level is lower and they tend to conserve capital. But things have changed.
Currency inflation and rising social debt have driven bond yields, and thus interest payments (or coupons), to historic lows. Currently, most bond yields are well below the inflation rate. This “negative real yield” means that owning a bond can be costly. But the difficulties don’t end there.
Retirees need money from their portfolios to pay their bills, so they typically need to sell assets at current market rates to generate retirement income. For bonds, this can be very problematic at the moment. Consider the following equation.
- How much money is needed for a bond paying 2% interest to earn a yield of $20?Answer: $1,000. ($1,000 x 2% = $20)
- How much does it cost to earn a yield of $20 on a bond with an interest rate of 4%? Answer: $500. ($500 x 4% = $20)
These two equations show that to obtain the same $20 return, the market value of the underlying bond must change based on the promised interest rate.
- When interest rates rise, the market value of bonds falls.
- When interest rates fall, the market value of bonds increases.
The market price of a bond is inversely related to interest rates. Consider that interest rates are currently hovering near historic lows. What will happen to the market value of bonds held by retirees if interest rates rise significantly over the next 20 to 30 years? The answer is that the market value of bonds will collapse.
This changes the entire risk paradigm for bonds in retirement portfolios, potentially making them much less safe than commonly imagined. Bitcoin exists as an asset class separate from bonds. This is a bearer instrument that is not exposed to similar financial market risks. Therefore, owning Bitcoin could help offset at least some of the potential risks of owning bonds in retirement.
5. Bitcoin offers a potential solution to long-term medical risks
Another concern for retirees is medical costs. I’m not talking about regular medical costs here, but rather the potential for long-term care costs as you get older. Although insurance is available for long-term care, it has some unique challenges that are becoming increasingly difficult to overcome.
The healthcare industry generally suffers a double whammy when it comes to price inflation. In addition to rising health care costs due to the financial downturn, health care faces additional headwinds driven by economic demand. Increase in aging population.
Each state regulates insurance for long-term care. To protect the safety of policyholders, insurance companies face increased scrutiny of where and how they invest their premiums. To maintain the capital needed to cover future claims, insurance companies typically rely on low-risk medium- to long-term bonds. However, as the above discussion of bonds makes clear, low yields and the potential for rising interest rates complicate this practice. One direct impact is that nursing care insurance premiums have increased significantly.
We have previously mentioned Bitcoin’s usefulness as an inflation hedge and its potential for long-term price appreciation. As this relates to long-term medical care, it may make sense to set aside explicitly dedicated Bitcoin as a hedge against this rapidly increasing expense.
6. Bitcoin provides individual sovereignty
A final reason to consider owning Bitcoin in retirement is that it increases personal sovereignty. Bitcoin offers a level of ownership that cannot be achieved with other assets.Can be easily transported across borders Hardware wallet or seed phraseFor example, you can transfer peer-to-peer anywhere in the world at low cost.
If you store your Bitcoins safely in a wallet you control, no central bank can print them into oblivion and steal their value. The CEO cannot dilute its value by issuing more “stock.” Banks also cannot arbitrarily block access or confiscate funds. Unlike centralized financial institutions that can be ordered to freeze or withhold funds at the whim of governments or other third-party authorities, Bitcoin is immune to this kind of overreach if the keys are properly held.
You can also hold your own keys to Bitcoin in an IRA, especially for retirement purposes.products like Unchained IRA is a powerful tool for building wealth and saving with tax benefits. Additionally, keeping Bitcoin keys in the form of a multisig communal vault eliminates any single point of failure.
Sound financial principles and Bitcoin ownership
To reap the benefits of Bitcoin, you don’t have to engage in wild speculation or thoughtlessly abandon sound financial principles. In contrast, the more you view Bitcoin based on sound financial principles and apply them to your thinking, the greater the opportunities it offers. One sound financial principle that goes hand in hand with Bitcoin ownership is prudence.
Macroeconomic investment strategist Lynn Alden often talks about establishing a “non-zero position” (i.e. owning at least a portion) in Bitcoin. In my estimation, there is potential upside value at the risk of losing a few percentage points of your portfolio in a worst-case scenario. But let’s be clear: everyone’s situation is different. You should do your own research and make the best decision about what will work in your particular scenario.
It was first published Unchained.com.
Unchained is Bitcoin Magazine’s official U.S. co-custodial partner and an integral sponsor of related content published through Bitcoin Magazine. Please visit our website to learn more about the services we offer, our custody products, and the relationship between Unchained and Bitcoin Magazine. Website.
