Sep 082013

Bitcoin Retirement Portfolio

Considering Bitcoin in your retirement portfolio? Good for you. And bad for Bitcoin. Let me explain. Market Watch recently ran an article by Jack Tatar about why it might be a good idea to have Bitcoin in your retirement portfolio. I’ll leave it to the author to explain, but the premise is that it isn’t terrible to have some (5%-10%) diversification in your portfolio through a highly speculative “investment” in Bitcoin that has a very high potential return. Indeed, the value of Bitcoin can potentially rise exponentially depending on its mainstream adoption.

There is a fundamental disparity between Bitcoin as a payment system and Bitcoin as an investment. Bitcoin as a payment system is what will ensure mainstream adoption of Bitcoin. Bitcoin as an investment will only lead to hoarding and it will never reach mass adoption. Bitcoin is simultaneously “PayPal” and “gold”. The “PayPal” part of Bitcoin ensures a lot of transactions and movement of Bitcoin from one person to another whereas the “gold” part of the Bitcoin is a long-term hold and watch strategy that most gold-bugs are aware of which does nothing to make Bitcoin more popular.

Here’s the thing – the hackers and entrepreneurs are busy using Bitcoin as a payment system, building new services and products that utilize all the good features of the crypto-currency. On the other hand, the hoarders simply have a cold storage wallet with Bitcoin in it and waiting for the price to shoot up (Winklevoss twins anyone?) and do nothing for the Bitcoin economy really.

The entrepreneurs will get their way. Bitcoin is certainly on road to becoming more mainstream every day. That means its value will invariably increase, thus benefiting the people who simply hold on to Bitcoin waiting for it to go up. Ironically, it probably would be good for these people as the entrepreneurs succeed but if everyone began hoarding Bitcoin, it will have no value.

So indeed, Bitcoin in your retirement portfolio is probably good for you as the others are busy making Bitcoin more mainstream which indirectly will increase the value of Bitcoin you hold, but that is certainly bad for Bitcoin because it chokes off the circulation of these Bitcoins that are hoarded. I don’t know a way around this dilemma. Perhaps you do?

Photo Credit: 401(k) 2012

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  4 Responses to “Why Bitcoin in Your Retirement Portfolio is Good For You and Bad For Bitcoin”

  1. While a person, like you are referring to in the above article, buys, for example, 1000 bitcoins for $150000 and keeps it stored like he would be doing if the $150000 remained on a bank he gives not only the person energy/value in return but he also gives the entire bitcoin network energy, value and reason.

    The person selling the old man these 1000 bitcoins for $150000 might as well be the hacker or entrepreneur you are talking about who is going to use these $150000 for a new bitcoin app or investment of any sort which then supports the idea of bitcoin as a payment system.

    Also keep in mind the fact that while bitcoins are being stored ice cold in a wallet it doesn’t have a single effect on the network/system until the time comes when its moved again and still then the way and to whom its moved means allot.

    For example, i can influence the bitcoin price by selling hordes off bitcoins on MTgox or BTC-E but i won’t effect the price @ all when i send hordes of bitcoin to like say my friend from wallet to wallet. It basically comes down to whom you send it, to where you send it and as to why its being send.

    I applaud anyone who has money, euro’s, dollar or any kind of FIAT currency to invest in bitcoin like a idea of savings. Why? The less fiat currency in use by people with steady incomes the less the FIAT has value. So the more people that use bitcoin even as if it was by the idea of savings the more it’ll be worth. FIAT goes down? Bitcoin goes up.

    After all the only difference between FIAT and Bitcoin is the sole meaning of FIAT.

    You made this article yourself ruletheworld?

    • The Bitcoin network doesn’t really get much if all you’re doing is storing your Bitcoin in cold wallet without circulation. This is true at least at the current stage that Bitcoin is at today. It isn’t a currency that is used for everyday shopping, and what’s really needed for the concept to take off into the mainstream is for it to have an exchange value and people using it to buy goods and services rather than hoarding it.

      You answer yourself when you say “I applaud anyone who has money, euro’s, dollar or any kind of FIAT currency to invest in bitcoin like a idea of savings. Why? The less fiat currency in use by people with steady incomes the less the FIAT has value. So the more people that use bitcoin even as if it was by the idea of savings the more it’ll be worth. FIAT goes down? Bitcoin goes up.” You are still using fiat to buy your groceries and hoarding Bitcoin in your wallet. How will Bitcoin gain adoption in that case?

      It’s hard to detach from the price of Bitcoin but at this stage, the price of Bitcoin means nothing to the protocol as a whole and its adoption (yes, lower volatility though it good for some business purposes). It’s not the price but value that matters. Bitcoin provides value only when it is used as a currency rather than hoarded like a commodity. That was my point.

      And yes, I wrote the article myself of course!

  2. Allright, good article. Gave me some thought 🙂

  3. RuleT,

    The answer is obvious.

    I need to have actual net-net Bitcoin sitting in my investment account, and I need to use credit Bitcoin for my purchases through the month. I’ll settle up with you within ten days of the end of the month in which you send me a legitimate invoice.

    Now then, Sam, get in touch with me about the software, and the Lloyd-Jones Bank, which doesn’t exist yet, will probably be able to work you in as an early customer. And yes, I have some numbers in mind…

    If the security can be very very good, the interest payments and penalties can be radically lower than those on commercial currency credit cards, which would probably help make great success possible. (Your six-handshakes-in-advance wallet is a good parallel for the non-credit credit cards which Visa and MasterCard sell.)

    A message at 647-713-7737 will get answered eventually. E-mail gets a reply usually within hours.


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