The Case for Bitcoin in Your Retirement Portfolio

Kim Hughes |

I believe, with very few exceptions, you should have cryptocurrency in your retirement portfolio.

Some people hear that and immediately dismiss it as crazy. I think it’s crazy not to.

So, let me share with you how I think about sane crypto investing…

Sadly, we live in an age of ever-increasing polarization and the future of cryptocurrency is no exception. There are prominent people on both sides of the debate.

For example, Nobel Prize-winning economist, Joseph Stiglitz said…

“One of the main functions of government is to create currency. Bitcoin is successful only because of its potential for circumvention, a lack of oversight. So it seems to me it ought to be outlawed, It doesn’t serve any social, useful function.”

Well-known cryptocurrency skeptic, Preston Byrne, believes there will be a “regulatory zombie marmot apocalypse” that will drive values of cryptocurrencies into dust.

And finally, one of my investing heroes, Jack Bogle, founder of Vanguard and inventor of the index fund, has told investors to “avoid Bitcoin like the plague,” and went on to lay out a common sentiment among crypto-skeptics.

“There is nothing to support Bitcoin except the hope that you will sell it to someone for more than you paid for it.” An idea I call the greater fool theory.

Fair enough!

On the flip side, there are also some really smart and thoughtful people doing meaningful work on how does one value a cryptocurrency? So as to specifically answer the question, is crypto asset X overvalued or undervalued?

(While I try to be an owl, rather than bull or bear, I will say, at least the people on the bull side are doing innovative research and writing papers and putting them out for peer review, while a lot of my old heroes simply turn their noses up and rest on their Nobel prizes, rather than doing any real work to support their opinion. )

I won’t bore you with in-depth explanations of the various new valuation methodologies.

I will include links to some of the most prominent papers below, for those who want to explore further.

But one, by John Pfeffer, formerly of McKinsey and a partner at KKR, which jumps off from the monetary model, concludes, for example…

“If Bitcoin were to succeed at displacing gold to even a modest degree, as a monetary store of value (and it currently appears to be the strongest contender by some margin), it could be worth between $260,000 — $800,000 per Bitcoin.”

Just for reference… As of today, it is around $9,000.

Another very recent approach is even more compelling to me, in that it suggests cryptocurrencies act like long-term call options.

So the authors have suggested an adaptation of the Black-Scholes Model for pricing options for understanding cryptocurrency valuations.

Really good stuff.

The point is we literally have people on one side arguing that cryptocurrencies are a folly that will go to zero.

And, on the other side, if it were to replace gold and off-shore banking, because it is a better gold than gold, that it could have a fair value of a million or more.

Legitimately. And everywhere in between.

So, what do you do? Who do you listen to?

How do you know who is right?

You can’t know. No one knows. Only time will tell.

Everyone is just giving their opinion. And, you know what they say about opinions, right?

Fortunately, for us, we don’t have to know who is right, to make the right decision.

What we have here is a modern day version of Pascal’s Wager.

Old Blaise Pascal was pretty ground-breaking, back in his day. For those who are unfamiliar with Pascal’s wager, here is the summary from Wikipedia …

“Pascal’s Wager is an argument in philosophy presented by the seventeenth-century French philosopher, mathematician and physicist Blaise Pascal. It posits that humans bet with their lives that God either exists or does not.

Pascal argues that a rational person should live as though God exists and seek to believe in God.

If God does not actually exist, such a person will have only a finite loss (some pleasures, luxury, etc.), whereas they stand to receive infinite gains (as represented by eternity in Heaven) and avoid infinite losses (eternity in Hell).”

Historically, Pascal’s Wager was groundbreaking because it charted new territory in probability theory, marked the first formal use of decision theory, and anticipated future philosophies such as existentialism, pragmatism and voluntarism.”

So, to sum it up, the nature of Pascal’s wager is… If you gain, you gain all; If you lose, you lose almost nothing.

It can be argued, in fact I AM arguing, that investing in Bitcoin is one of the few asymmetric bets that anyone can participate in.

The sorts of returns that are theoretically possible, though far from certain, are normally reserved for venture capitalists who are early investors in “unicorns”, like Facebook (FB), Uber or Airbnb.

Think of it like a call option, where your downside is limited to only your investment, while your potential upside is still 100x or more.

And we get to participate.

But, like Pascal’s wager, it requires you to believe … or at least live as though you believe.

So, what does that mean, in practical terms?

First, let’s stipulate a couple of things. The first is I believe, for reasons that will become more obvious below, that you should not invest more than 2% of your total investable assets in cryptocurrency.

Second, cryptocurrency is not suitable for everyone. Meaning, you should only invest risk capital that will not affect your standard of living if it is lost or sits idle for long periods of time.

I am talking about investing in a new asset class here. Something you will remain invested in for the rest of your portfolio’s life. Just like the stocks, bonds, commodities, REITs and other asset classes you might hold today.

Now, back to living as if god exists …

Let’s take a hypothetical investor, Jill. Jill is still working, as a school administrator. She has a $500,000 portfolio, spread among her 401(k), an IRA and a taxable brokerage account. And she is on track to retire in 5 years.

For me, Job #1 for a portfolio is enough portfolio income you can do what you want, when you want, without worrying how to pay for it.

So, just to use a simple rule of thumb, which I am not crazy about, but makes it simple…

Given a 4% withdrawal rate, in retirement, the current cash flow potential of Jill’s portfolio is $20,000 per year. And of course, we assume she also gets social security, etc.

The assumption, based on my rule from earlier, is that Jill would only invest up to 2% of her investable assets. In her case, that would be $10,000.

Work, by Chris Burniske, has shown that crypto assets are uncorrelated with stocks and bonds. Therefore, adding them to your portfolio creates diversification, which decreases total portfolio risk.

There is reason to believe that crypto assets, in general, but Bitcoin very specifically, may act similar to gold, in periods of inflation, and therefore be a hedge against hyper-inflation.

But we are working with very short data sets. So, those are secondary and tertiary benefits, in my mind, if they are even considered at all.

One could also argue that, while we don’t expect a diversified portfolio to go to zero, the money we are investing in crypto assets is already at risk. We are moving it to what may be more risky and volatile on its own. But it is not unheard of for a stock to lose 50% of its value suddenly, either.

So, let’s consider worst, worst case… Jill invests $10,000 in crypto assets and loses it all.

The income potential of her portfolio has fallen from $20,000 per year, to $19,600.

But, on the flip side, let’s not look at her Bitcoin going to $1 million or $500,000 or even $100K. Although again, there are valuation models under which that is not far fetched.

Let’s just take the returns of 2017, which were just over 1000%!

So they happened last year. No guarantee they will happen this year. Or ever again. But just to try to show a reasonable upside scenario…

Last year, her gain on her $10,000 investment would have been $124,478!

That is what I mean by Pascal’s wager. If you are completely wrong… god doesn’t exist… You lose the entire $10,000… your retirement income potential drops by $400.

But, if you are right… god does exist … and you just get last year’s returns, your portfolio income is now $25,000! That’s a 25% raise, for life!

Who wouldn’t take that bet???

And that is why I believe every investment portfolio, should make a strategic investment, of up to 2% of total investable assets.

The fact that these are funds earmarked for retirement is neither here nor there.

Something to consider. I hope you found it helpful …

If you’d like to learn more about investing in cryptoassets for retirement, I would encourage you to register for my free online training, How A Little, Little Bit of Bitcoin Can Make Your Retirement Savings Go A Lot, Lot Further.

As always. If you have any questions at all, about this topic, or anything else, just email me at I read and answer every email personally. Or leave it in the comments below.


Bitcoin Bulls and Bears (Bloomberg)

The Bullish Case for Bitcoin — Vijay Boyapati

Crypto Assets — Chris Burniske & Jack Tatar

An (Institutional) Investor’s Take on Cryptoassets — John Pfeffer

An Efficient-Markets Valuation Framework for Cryptoassets using Black-Scholes Option Theory —(Johnny Antos & Reuben McCreanor)


Patrick O'Shaughnessy for first mention I had heard of Pascal’s Wager in his excellent Hashpower Series. Highly recommend as best way to get the 80/20 of cryptocurrency in just a few hours.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to:


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