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  • Writer's picturePatricia A. Stewart | CFA

Cryptocurrencies and Retirement Planning: The Risks of Investing in Cryptocurrencies

It’s important for investors, of every skill level, whether they’re just getting started, heading into their pre-retirement years, or are already enjoying retirement, to find investments that help them generate enough money to live comfortably.

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For many, a diversified portfolio includes stocks and bonds. A new asset class, though, that is attracting a lot of attention is cryptocurrencies. And for good reason. Cryptocurrencies, especially early investors in Bitcoin, have since become millionaires and billionaires.

Now, the fear of missing out has many investors asking if they should be adding cryptocurrencies to their retirement portfolio.

What Is Cryptocurrency?

Cryptocurrency is a decentralized digital asset that is created, or mined, through complex mathematical transactions on a public, online ledger called a blockchain.

Bitcoin, the first cryptocurrency, was established in 2008 as a response to the traditional monetary system where governments borrow money by issuing bonds and ordering the central bank to buy those bonds, which it does by creating physical money. Because that money is not backed by a commodity like gold or silver (just a governmental decree that it is worth something) it can be easily devalued.

Bitcoin, however, is not controlled by any one person, nor is it backed by a central bank. It’s produced (mined) by individuals and businesses on computers that use software to solve an encrypted, mathematical equation, that is verified by other users. Because bitcoin is an independent global currency, it cannot, in theory, be manipulated.

While new bitcoins are minted every day, there is a limit to the number that can ever be created: 21 million. This helps prevent inflation, but not speculation. And that’s one of the most appealing aspects of cryptocurrencies. It’s also why investing in cryptocurrencies can be so risky.

What Are Some Risks of Investing In Cryptocurrencies?

Cryptocurrencies are difficult to understand. Making investing strategies based on emotion, as opposed to doing your own research and understanding the risks, can be especially dangerous. This can result in investors paying too much for an asset and experiencing huge financial losses.

Below are just some of the main risks of investing in cryptocurrencies.


Volatility is the biggest risk concerning cryptocurrencies. It’s not uncommon for a cryptocurrency like Bitcoin or Ethereum, the two most popular cryptocurrencies, to experience daily fluctuations of more than 30%.

Its long-term history is just as uncertain. Since hitting a record high of $69,000 in November 2021, the value of Bitcoin has cratered, as of this writing, more than 66% to around $23,300. Ethereum, the second-largest digital coin, has tumbled 75% since November., trading near $1,234.

There are roughly 19,900 cryptocurrencies in circulation. Lesser-known cryptocurrencies can experience even greater daily volatility. In fact, it’s not uncommon for some cryptocurrencies to experience a complete meltdown.

There is a class of cryptocurrencies called, Stablecoins. Their value is tied to physical assets such as the U.S. dollar and precious metals. This is supposed to make them more stable.

In May, TerraUSD, a cryptocurrency that was pegged to the U.S. dollar, lost its peg and collapsed, from one dollar to less than one cent. Its sister token, luna, crashed to $0.

There are a lot more digital currencies that collapse and disappear than are successfully adopted by the crypto community.


Bitcoin is the most popular cryptocurrency in the world. Since January 2, 2009, over 19 million Bitcoins have been mined. Unfortunately, the ownership of Bitcoin is concentrated in the hands of a few.

The top 10,000 individual investors control approximately one-third of all Bitcoin in circulation. The concentration of those who mine Bitcoin is even smaller, with the top 10% miners controlling 90% of all Bitcoin mining capacity. On top of that, just 0.1% (roughly 50 miners) control half of the global mining capacity.

This type of concentration makes the Bitcoin network susceptible to a 51% attack, where a group of miners, or even one Bitcoin miner, could take control of the entire network.

Lost Keys

When a cryptocurrency like Bitcoin is created, it is deposited in the owner’s virtual wallet. A private key, or password, is created when you open a crypto wallet. They are generally between 32-34 characters long and include numbers, and uppercase and lowercase letters.

Those keys cannot be changed to something you can easily remember, like the password to a credit card. If you lose that key, you cannot access your cryptocurrency. It happens a lot.

In 2013, Welsh IT worker James Howells lost 7,500 Bitcoins after accidentally throwing out an old hard drive. Today, those Bitcoins would be worth $180 million; in November 2021, it was worth more than half a billion dollars.

It is estimated that 20% of all Bitcoins, currently worth around $130 billion, have been lost or stranded in wallets. Investors can see them in their accounts but cannot access them.

Why Should You Trust Sharp Asset Management for Your Retirement Planning?

Investing in alternative assets can be lucrative, but the short history of cryptocurrencies shows they can be extremely risky and could wipe out a significant portion of a retirement portfolio.

If you’re looking for a portfolio management firm or asset management company in Toronto, Mississauga, or the GTA that can help you build a diversified portfolio across asset classes, countries, and regions—one that best suits your investment goals and risk tolerance—Sharp Asset Management can help.

Sharp Asset Management Inc. is an independent portfolio management firm that is 100% owner-operated. Since we are a highly concentrated group of professionals, we can respond quickly to changing market conditions.

Sharp Asset Management is not affiliated with any financial institution, securities firm, or mutual fund company. Nor do we earn any commissions or fees on investments we choose for our clients. That means our team of wealth management professionals is focused exclusively on helping you achieve your unique, long-term investing objectives. To learn more about investing with Sharp Asset Management, contact us today.

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