KEY TAKEAWAYS:

• Cryptocurrencies are not true investments - they lack income, intrinsic value, and an expected real rate of return.
• Despite the hype, cryptocurrencies fail as reliable currencies due to their extreme volatility and lack of government backing.
• For retirees, adding cryptocurrency to a portfolio introduces unnecessary speculation and risk without offering meaningful diversification benefits.

On October 18, 2021, the first U.S. bitcoin-linked ETF (ticker: BITO) created by ProShares began trading, making trading access to cryptocurrency “investing” easier and more readily available to everyday investors.  BITO will likely not be the last product created by fund companies to capitalize on strong investor interest in cryptocurrency investing, driven by vast media attention and wildly volatile movements.  

As retirement planning specialists, we still have some people coming to us asking whether they should allocate a portion of their assets to cryptocurrencies. This all begs the question:  Do cryptocurrency or cryptocurrency-based investments belong in a retiree’s investment portfolio? Let’s take a look.

Cryptocurrencies Are Not Investment Assets

While this may not be a popular answer, we believe the short answer is NO.   

Ignoring the fact that BITO carries an expense ratio of 0.95% and the inherent tracking error problems of using futures contracts to track an index, there is a more fundamental reason why these “assets” do not belong in any portfolio.  Bitcoin, and other cryptocurrencies, are not investments.  

For an asset to be considered an investment, the asset must have an expected real return. A real return is the portion of return that exceeds the rate of Inflation. If an asset class cannot contribute to the real return of a portfolio over time, it makes no sense to add that asset class.

Cryptocurrencies do not have an expected real return because they are not income-producing assets. They do not represent claims on a stream of income and therefore cannot be valued or expected to grow in value (based on income growth). 

The “value” of a cryptocurrency is determined by supply and demand factors of an unstable and unpredictable group of market participants.  Cryptocurrencies may be non-correlated assets with tons of volatility, but they do not have an expected real rate of return and, therefore, should not be considered investments and should certainly not earn a place in your investment portfolio.

Aren’t Cryptocurrencies Alternative Forms of Currency?

Technically, cryptocurrencies are an alternative form of currency because some people are willing to hold them as such, but they do not even come close to possessing the qualities needed to be considered an acceptable or strong currency.  

A strong currency holds value stable.  Cryptocurrencies swing wildly in value based on the supply and demand factors of speculating market participants.  Traditional fiat currencies like the U.S. dollar are backed by their respective government’s ability to tax their citizens.  Cryptocurrencies have no such backing. There is also no FDIC insurance like there is with U.S. dollars on deposit with a bank.  

But Couldn’t Cryptocurrency Exposure Diversify a Portfolio?

Having foreign currency exposure is an important part of a diversified portfolio, but we gain that exposure by investing in international developed and emerging markets companies.  Currency fluctuations enhance the diversifying power of these investments.   

Under our investment philosophy, we would naturally gain exposure to cryptocurrencies when corporations accept these assets on their balance sheets.  Except for some early adopters like Tesla, most companies would only allow these assets on their balance sheets once the market determines which cryptocurrencies prevail to become valid stable currency alternatives (if ever).  

In addition, if you look at the returns of something like BITO over the past four years (from inception until September 30, 2025), it has returned about 49%, which is right on par with the performance of the S&P 500 (4,486 closing value on Oct 18, 2021 to 6,688 on September 30, 2025) over that same time period. However, BITO contains much more risk than investing in the S&P 500 which is a diversified index of actual income-producing companies.

Remember, true investing isn’t just about chasing raw returns—it’s about achieving risk-adjusted returns that balance growth potential with stability. When an investment delivers the same or lower return with far more volatility, it fails to add value to a retirement portfolio.

How Should I View Cryptocurrencies in the Context of a Retirement Portfolio?

Cryptocurrencies and cryptocurrency-based investments are nothing more than popular speculation vehicles because of their wide swings in value, media attention, and a “cool” factor.   As long as people continue to think there is some sort of value in these things, they could continue to climb in value.   

But what happens if people one day wake up and decide they are no longer willing to hold these assets?  There is no backstop, and the last investor to hold these assets will ride them down to nothing because there is no government backing, and they do not represent claims on a source of income.

At this point, it’s fair to question whether cryptocurrencies are approaching mania status. History offers a useful comparison: during the 1630s in the Netherlands, the price of tulip bulbs was bid up to more than ten times the annual income of a skilled worker, only to collapse suddenly when the frenzy ended. Again, the value was driven purely by the supply and demand characteristics of a speculative group of market participants.  Don’t allow yourself to be the last one holding these cryptocurrency “assets.”

If you would like help determining your optimal investment portfolio for retirement, you can schedule a call with one of our retirement planning specialists to discuss other investments that may be suitable to help you achieve your goals without taking on unnecessary risk.