Can Bitcoin Help You Retire Early?
For investors looking to speed up the time they reach retirement, investing in stocks is a necessary effort. The S&P 500 has risen by about 10% per year on average over the past century, suggesting that it has the ability to turn seemingly small amounts of money into massive wealth given enough time.
But the rise of cryptocurrencies — special Bitcoin (BTC 0.79%) — has introduced another powerful tool to the investor’s kit. That’s because even considering the increased risk, the potential to achieve life-changing returns faster is certainly a possibility now.
Here’s why Bitcoin just might help you retire early.
The chance for high returns
Key areas of focus for anyone thinking about retirement should start with trying to increase their income, in addition to putting away a meaningful amount of money as long-term savings. These are important things that someone actually has control over, and they have a profound impact on your financial well-being.
The next point of emphasis should be to try to achieve satisfactory returns. And this is different for everyone because it is based on, among other things, the number of years until retirement, risk tolerance and desired lifestyle. Talking to a financial advisor about your goals will help you determine what returns to the goal.
Bitcoin can certainly increase a portfolio’s ability to produce fantastic returns. Since April 2013 (the earliest data provided by coinmarketcap.com), the digital coin has generated a monster return of nearly 12,000%, easily crushing the S&P 500 and Nasdaq Composite Index. The ride up has seen an extreme amount of volatility. And this is evident now, as the cryptocurrency is down 65% in 2022 as of this writing. The return has remained high in a multi-year perspective, but investors must be able to withstand the inevitable ups and downs.
Trying to find ways to increase the potential returns of your portfolio while keeping your risk at a level you’re comfortable with is the name of the game for getting to retirement sooner rather than later.
Bitcoin’s most realistic use centers on it continuing to become a more prominent store of value worldwide. And with this framework in mind, I think ARK Invest gives a comprehensive picture of its future expected value.
According to the growth-oriented investment firm led by Cathie Wood, Bitcoin may gain greater acceptance as an asset to be bought and held by central banks (for 1% of asset reserves), high net worth individuals (for 5% of their wealth), institutional investors (2 .5% of assets) and companies (5% of cash on the balance sheet). In addition, it can slowly rise in value to 50% of the entire global value of gold. If we consider ARK Invest’s estimate based on these factors, the price of a single Bitcoin may exceed 1 million dollars by 2030, versus about $16,000 today.
This excludes potential gains from Bitcoin being used for money transfers, as a currency in emerging markets and as a settlement network – other functions Ark Invest believes Bitcoin can serve. I’m only focused on Bitcoin as a store of value in this analysis, not as a transaction tool, which is a more uncertain idea and likely much further down the road.
A $1 million price target implies a more than 62x gain between now and the end of the decade, meaning a $100,000 investment in Bitcoin today would be worth roughly $6.2 million in 2030. And at that level are Bitcoins market value would be a whopping $21 trillion.
Compared to traditional stocks, which represent actual businesses that produce revenue and cash flow, it is not exactly easy to do a valuation analysis on Bitcoin. So, to be clear, it’s anyone’s guess whether Bitcoin can reach this lofty goal by 2030 — or at all. But you get the idea of how gigantic the upside can be.
And I’m almost certain you’ll struggle to find stocks that have the potential to beat Bitcoin’s returns over the next decade based on the scenario I just discussed. As a result, a small allocation to this top digital asset can bolster your portfolio and put you on the fast track to retirement.