Though Bitcoin gets the Crypto headlines, I continue to remind you that it is Blockchain that is the promising digital technology that has a place in investment allocation in a long-term retirement portfolio.
Though in 2017 Crypto looked promising, in 2022 we saw the complete collapse of Terra (4th largest cryptocurrency and its related Luna coin) that was believed to be the most stable crypto (it was linked to US dollar) and in 2023 we saw the high-profile collapse of cryptocurrency exchange FTX (Sam Bankman-Fried was convicted of fraud and is awaiting sentencing in 2024). Bitcoin was at $64.4K in November of 2021 and the same single coin was worth $16,500 by November 2022 and was back at $34K by November of 2023. That is certainly too much volatility for a retirement portfolio and yet speculators, media, and pundits promote that it be included. The most stable Cryptocurrency platform and coin are currently Ethereum and its Ether coin, but it is still very volatile.
The progress and growth of Blockchain as a financial digital technology (rather than as a currency) has increased and it looks like it may be an important part of productive AI (Artificial Intelligence) technology development. In addition, Blockchain technology has already seen much revenue growth. Consider that the revenue was around $35M in 2019 and in 2023 increased to $1.75B.
As time passes, we are seeing more acceptance and conversation on how to best allocate digital assets in a portfolio. The most recent was the SEC acceptance of Cryptocurrency-based exchange-traded funds (ETFs) which are primarily for currency allocations. Unfortunately, we are also seeing danger signs. Use of cyber/virtual currency to fund terrorism and destabilize governments may be its undoing since a significantly large and obvious connection between Blockchain and terrorism will cause a global crackdown. My hope is that a crisis will instead generate protective processes/tools which may allow Cryptocurrencies to compete directly with fiat currency.
For now, Cryptocurrency is an investment to be consider like you might consider investing in art, collectible cars, rare coins, and stamps. It can gain and lose a lot of value and not be liquid to use in a crisis particularly during your retirement.
Edi Alvarez, CFP®
BS, BEd, MS