Does Bitcoin Belong in Your Retirement Plan? Financial Planners Say Proceed with Caution

Scenes of disgraced FTX founder Sam Bankman-Fried in the courtroom this month have brought the dangers of investing in cryptocurrencies to the forefront of public consciousness again. 

Yet not all digital assets are alike, nor are they equal in value, and for some, greater institutional adoption is bringing legitimacy. 

One of America’s largest asset management companies, Fidelity, still finds the investment thesis for Bitcoin compelling. Fidelity recently issued a new report reassessing Bitcoin’s value, finding the coin to be superior to other digital assets. 

“Bitcoin is fundamentally different from any other digital asset,” the report claims. “No other digital asset is likely to improve upon bitcoin as a monetary good because Bitcoin is the most (relative to other digital assets) secure, decentralized, sound digital money, and any ‘improvement’ will potentially face trade-offs.” 

Fidelity highlighted BTC’s top features, including its durability, divisibility, fungibility, portability, verifiability, scarcity, decentralization, and run on open-source code. Fidelity concluded that Bitcoin may potentially become a primary monetary good in the future, hinting that the asset is more than just a payment technology. 

The report is proof of deepening institutional interest in the asset. Yet how does Bitcoin exposure sound to financial planners responsible for determining the allocations of everyday retail investors? There is nuance in how to position it best in a balanced portfolio.

Bit or Bust?

Historically, cryptocurrencies had no place in traditional retirement portfolios. Yet, since the pandemic, an increasing number of financial advisors are introducing cryptocurrencies into clients’ portfolios. 

One survey by Bitwise Asset Management and ETF Trend showed the percentage of financial professionals allocating client funds into digital assets increased from 9% to 15% through 2021 (although the overwhelming majority limited exposure to 5% of a portfolio). Nonetheless, interest in the asset was high, with 94% of advisors saying they fielded questions about crypto from clients in 2021.

Yet now, in 2023, with crypto’s last bull run long past and popular currencies humbled by major price corrections, the buzz may have fizzled somewhat. Yet there remains cautious optimism among some advisors about Bitcoin’s lasting value. 

“I view Bitcoin as a unique asset that has the potential to provide both long-term growth and short-term volatility,” says Jorey Bernstein ​of Bernstein Investment Consultants. “It is a scarce asset not subject to inflation or government control. However, it is also a relatively new asset with high volatility. Investors should be aware of the risks therein.”

If anything adds to price volatility, it is regulatory rumors. With so much at stake, the government’s next move could make or break the coin. 

Regulatory Rumble

Bitcoin bulls are pounding their hoofs, ready to charge out of the gate on news of further institutional adoption of the asset. Yet regulators still have them boxed in – the SEC’s continual delaying of decisions on numerous ETF applications has doubts linger over the herd. 

Recently, Bitcoin surged 10% on bogus reports BlackRock’s application for a spot price ETF had been approved.

“Crypto markets have just shown how sensitive they are to any potential good news, with their premature rally today on rumors of the approval of a spot bitcoin ETF,” Ben Laidler, global markets strategist at eToro, told Reuters.

The fake news-fuelled rally could be a sign of things to come. If the SEC finally gives the green light to the world’s largest asset manager, there could be a stampede and an ensuing price breakout.

“I think the SEC may approve a BTC spot price ETF,” says Bernstein. “However, there are several factors that the SEC will need to consider before making a decision. These factors include the potential for market manipulation, the level of investor protection, and the impact of an ETF on the price of Bitcoin.”

2024 Breakthrough?

There are other factors internal to the ecosystem that can move the price needle, too. One is Bitcoin halving, which occurs roughly every four years. Each halving lowers the rate at which new Bitcoin is created through mining, making the asset more scarce. Recently, Binance CEO Changpeng Zhao commented that next year’s scheduled Bitcoin halving may make way for “all-time highs.” 

Zhao sees a responding bull rally playing out in three distinct phases. First, the “Pre-Halving Excitement,” which sees a surge in speculation, online discussions, and media coverage in the lead-up to the event. This is followed by a “Post-Halving Reality,” which sees a prolonged period of consolidation and adjustments to the new supply. Finally, a “Subsequent Price Surges,” where Bitcoin’s price surges to new highs, usually a year or more afterward, after a combination of factors all coalescer to drive the price higher. (The current price of Bitcoin is around $28,000, while its historical all-time high is around $68,000.) 

If Zhao is correct, big gains could be in store for Bitcoin soon, yet this is no safe bet – historical trends are no guarantee of future results. 

Investors and advisors alike must tread carefully as they approach Bitcoin. Last year, the CFP Board, the professional organization for Certified Financial Planners, issued an official notice to the community, stating advisors are not barred from providing advice to clients on crypto but “should do so with caution.” Certified Financial Planners have a fiduciary duty and a duty of competence. Essentially, a CFP must know their stuff to advise their clients. 

Before hiring a financial advisor, consumers interested in cryptocurrencies should consider online resources like Wealthtender to research advisors and read reviews, or ask their accountant for recommendations of advisors they trust. 

Regardless of whether consumers seek help from financial advisors or prefer a do-it-yourself approach, Bitcoin is best kept at the riskier end of one’s allocation spectrum and not as a mainstay investment. No one should stake their retirement on such a volatile asset. 

Find a Financial Advisor

Do you have questions about your financial future? Find a financial advisor who can help you enjoy life with less money stress by visiting Wealthtender’s free advisor directory.

Whether you’re looking for a specialist advisor who can meet with you online, or you prefer to find a nearby financial planner, you deserve to work with a professional who understands your unique circumstances.

Have a question to ask a financial advisor? Submit your question and it may be answered by a Wealthtender community financial advisor in an upcoming article.

–

This article originally appeared on Wealthtender. To make Wealthtender free for our readers, we earn money from advertisers, including financial professionals and firms that pay to be featured. This creates a natural conflict of interest when we favor their promotion over others. Wealthtender is not a client of these financial services providers.

Disclaimer: This article is intended for informational purposes only, and should not be considered financial advice. You should consult a financial professional before making any major financial decisions.