Just a few years ago, the idea of ​​including cryptocurrency as part of a retirement investment strategy would have been unthinkable. But with Wall Street now embracing the idea of ​​cryptocurrencies as a standalone asset class, the situation appears to be changing. This is especially true for younger investors, who seem much more willing to take on additional risk if it means the opportunity to retire early.

From my perspective, there are still only two cryptocurrencies that make sense when saving for retirement: Bitcoin (CRYPTO: BTC) and Ethereum (CRYPTO: ETH). It is impossible to ignore the returns they have generated over the last decade. And new investment products are emerging that could make adding them to a traditional retirement portfolio much easier. Let’s take a closer look.

1.Bitcoin

The obvious crypto investment option is Bitcoin, which has an incredible track record of outperforming the broader market. From 2011 to 2021, for example, Bitcoin was the best-performing asset in the world, and it wasn’t even close. Bitcoin provided annualized returns of 230% per year. The next best asset class – technology stocks – returned just 20% per year. While this type of performance will be difficult to replicate in the future, Bitcoin generated returns of 150% last year and is up 60% in the first five months of 2024.

With Bitcoin currently trading near its all-time high of $73,750, the big question on many investors’ minds is how high it can go. Some have suggested that Bitcoin could reach $150,000 by the end of 2025. And Cathie Wood of Ark Invest has suggested that Bitcoin could rise to $1 million by 2030. If your retirement horizon is 10, 20 or even 30 years, the sky is the limit for how high Bitcoin can go.

Image source: Getty Images.

There is one more factor that makes Bitcoin particularly attractive from a retirement planning perspective: the launch of new spot Bitcoin ETFs in January. Before this year, using crypto to save for retirement was practically a patchwork, DIY project. It was complicated and inefficient because there was no standardized crypto investment product that individual investors could use for retirement. Now it exists. And the idea now is that Bitcoin ETFs will start to appear more and more as options in retirement savings plans.

2. Ethereum

Just like Bitcoin, Ethereum has delivered extraordinary returns over the past decade. When Ethereum launched almost a decade ago, it was valued at just $0.30. Today, Ethereum is valued at almost $4,000. Of course, past performance is no guarantee of future returns, so the key is to focus on Ethereum’s future growth prospects.

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The good news here is that Ethereum has a compelling long-term investment thesis. It has a dominant role in almost every niche of the blockchain world, as well as in the most diverse blockchain ecosystem. Even better, Ethereum’s much-vaunted technical transformation (“The Merge”) in 2022 has laid the foundation for the next major stage of growth.

And just like Bitcoin, Ethereum will soon have its own ETFs. In late May, the SEC approved spot Ethereum ETFs. Investment firms still need to file some final documents with the SEC before the new ETFs can begin trading. But when they do, they could eventually become valuable tools for retirement planning.

Does crypto belong in your retirement portfolio?

Admittedly, there are several downsides to adding cryptocurrencies as part of your retirement portfolio. Most importantly, there is the issue of volatility. Yes, Bitcoin and Ethereum have provided incredible returns over the last decade. But they also had very bad years, in which they lost more than half their value. That’s the last thing you want in a retirement asset.

With this in mind, the most prudent advice is to allocate only a small amount of your retirement portfolio to crypto. You will gain the diversification benefits of crypto as a single asset class but minimize the risks of a potential crypto collapse. And to further minimize risk, you should probably focus on using the new spot ETFs for Bitcoin and Ethereum rather than trading crypto directly.

But here’s the thing: If you’re quickly approaching retirement age or are way behind on your retirement savings needs, adding just a small amount of crypto to your portfolio can make a tremendous difference. As long as you take a long-term perspective and are aware of the risks involved with crypto, Bitcoin and Ethereum can help you retire in style. And potentially even a few years earlier than planned.

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Dominic Basulto has positions in Bitcoin and Ethereum. The Motley Fool has positions and recommends Bitcoin and Ethereum. The Motley Fool has a disclosure policy.

Cryptocurrency for retirement planning? Buy these 2 coins now was originally published by The Motley Fool

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