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Millennials are Adding Crypto to Their Retirement Funds, But They Could Lose it All if the Market Sours. Two Experts Break Down How to Get the Returns, But Without the Risks From Digital Assets

Retail investment advisors say crypto assets should only be 5% of a highly diversified portfolio.

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This story originally appeared on Business Insider

Cryptocurrencies are more than just a way to make a quick profit for a growing number of millennials who are looking to add the likes of bitcoin to their retirement portfolios, so they can continue to reap the benefits of this asset class long after today's meme-like hype has faded. 

"We're not selling bitcoin through retirement accounts, we're selling retirement accounts to bitcoiners," Ryan Radloff, chief executive office of Kingdom Trust, told Insider.



Radloff, who helped found Coinshares, one of the world's largest digital asset managers, said he saw a gap in the market for the 7.1 million bitcoin owners. 

"My co-founders who started CoinShares over in Europe, we understand exactly where our market is ... So effectively, I think a lot of it is just telling them that "Guys, hey, I've been with you since 2012 before bitcoin was a hundred dollars. Guess what? There's a tax-efficient way of doing this, that isn't Grayscale now. Now, you can literally hold your own keys in a retirement account."

Even though bitcoin is one of the best performing assets of the last year, with a gain of almost 300%, its luster has faded lately. Concern about the environmental impact of the mining process, along with growing regulatory scrutiny saw bitcoin drop below $30,000 at one point this week, effectively wiping out all its year-to-date gains. 

Related: Why Small Businesses Should Consider Bitcoin

However, younger investors are willing to live with its volatility. Radloff's thirst for bitcoin and digital assets certainly remains unquenched. He is now at the helm of Kingdom Trust, which oversees more than 120,000 retirement accounts and has $18 billion in assets under management. 

He co-created the Choice app to address the need for greater diversification in the $34.6 trillion US retirement market. There are a few types of retirement accounts, such as individual retirement accounts (IRAs) and 401(k)s (group pensions that come from your employer). IRAs can be self-directed, called SDIRAs, which will allow users to include bitcoin as part of a wider asset allocation strategy.

The average Choice user opens a retirement account with about $85,000 and is in their mid 30s and early 40s, Radloff said. In just one year, he added that clients' appetite for bitcoin and other digital assets doubled to over $2 billion.



"Our average Choice account is about $220,000. So of that, about 65% of those assets are in digital assets, actually," he said. "So, they usually don't start that way. It usually starts around 10 to 25%."

Bitcoin in retirement

As tantalizing as it may be to aggressively pursue bitcoin as a retirement growth strategy option, market analysts advise caution. 

Related: How to Buy, Sell, and Keep Track of Bitcoin

"Investing in cryptoassets, or investments and lending linked to them, generally involves taking very high risks with investors' money," the UK's Financial Conduct Authority said in January. "If consumers invest in these types of products, they should be prepared to lose all their money."

Retail investment advisers also suggest exercising caution. 

"Until there's a real direction of travel in terms of digital payments and digital currencies, [in addition to] a framework setup and [crypto is] brought more into the regulatory sphere, there will be a concern in investing in them," Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, said. 

She added that as China cracks down on crypto assets and central banks consider adopting their own digital currencies, such as stablecoins, it could be premature to buy crypto as you may not be able to easily cash them in when your retirement age nears. 

She also had specific advice on how to protect yourself:

  • Before considering managing your own pension pot, build up 3 to 6 months of essential expenditure reserves
  • If you are considering adding crypto assets to your pension plan, ensure it remains less than 5% of a highly diversified portfolio. 
  • If you are closer to retirement, then create a portfolio that is more heavily weighted in stable investments classes or tracker funds.

Related: Are Online Businesses Ready to Start Accepting Dogecoin?