Is Crypto Quietly Destroying Your Retirement Plan?

For years, we've been told cryptocurrency is the future, that it's fast, decentralized, and it's going to make us rich. But now that it's part of mainstream conversation, everyone's asking the same question. Does it actually belong in your retirement plan? Today, I'm sitting down with Phil Clark, our CEO, with over 30 years of experience as a wealth adviser.

Let's just be real about it. It's not a currency. Putting a roller coaster inside of your retirement plan may not be the smartest play. It's hard not to think of crypto as being in a bubble because it's so expensive.

Crypto is volatile. It's exciting and it's confusing. But today, we're going beyond the hype to uncover the real risk, reward, and realities you might not be aware of. Welcome to We're Talking Money.

Before we get deep, let's talk numbers. Less than 12% of Americans own cryptocurrency, but over 60% of those who do hold it as an investment, not a currency. The top 1% of Bitcoin holders own over 40% of all the Bitcoin in circulation. If you invested in Bitcoin in 2015, you would have seen returns of over 24,000%. Give or take a little bit. But if you jumped in in 2021, you could have experienced massive swings instead of a smooth ride. The real question is not what is crypto, it's can you stomach this incredible roller coaster?

Why has cryptocurrency become so emotionally charged?

There's probably two factions here. I think you have first, I think you have a rebellion. I think there's a lot of people out there who, it's almost a way of life, and it's a rebellion against central banks because people don't trust them. People think our central banks are trash. They think that they are abused. It's an abuse of power globally, not just in the US.

And so I think crypto, by some, they view it as an investment and they think of it as currency, while it's not. But then I think you've got other people who view it truly as, it is a way to say, it's a way to say to heck with central banks, we're going to do it this way and we're going to get around you and Wall Street.

Right.

I think that, and so if you put all of that together, I believe every emotion gets captured in that. And so those are the two factions. Some who probably look at it really as an investment, some who look at it as rebellion. There's probably a third one, and that's the ones that don't understand it.

I'd say you're probably right. And people that don't understand it, they tend to just put their head in the sand and do nothing.

Yeah. So you probably have those, probably three possibilities there. And so of course those three, you're going to have a lot of emotion.

Yeah. And for a lot of people, they just think it's a get-rich-quick scheme.

Yeah. And so that creates emotion in itself.

One of the factions of people would maybe make the argument that cryptocurrency is the future of money. Do you think that that's true, or is it just good marketing, or is it something in between that?

I think the marketing for crypto is some of the best I've seen. First, let's just be real about it. It's not a currency.

Yeah.

Yet they call it currency.

It is slightly misleading.

Slightly misleading. We've talked about this around the firm a time or two. I think anytime you have misleading advertising or marketing, you're going to get a lot of people because they won't know the difference and they will fall for it because they're incredulous.

Yeah.

Or rather credulous, and they don't think about the reality of what's going on.

Mhm.

They see this get rich kind of thing. They hear it. It sounds great. And things like, "Hey, get away from a central bank. Don't use a regular currency that probably is going to go away soon." There's lots of fear-mongering when it comes to crypto, and I think a lot of people have jumped in as a result.

Yeah.

They've become very wealthy, some of them.

Yeah.

But we've also seen a lot who have become poor as a result.

It's true. There's just as many people losing everything in crypto as there are people that are making a lot of money.

And some people have become really wealthy as it relates to Bitcoin. But let's be real. I think it's marketing because it's certainly not currency because it doesn't create stable value, right? Crypto can move 10%.

Mhm.

We saw it go from 125,000 in the last few weeks to 100,000 yesterday, Spell.

Yep. Yep.

So there's a huge move. There was a 7% decline in a day.

In a day. Yeah.

Right. That's not a currency.

Yeah.

Right. So it fails there. And just a few years ago in 2022, we saw crypto go from 75,000 to 15,000.

Yep.

We're talking about a 70% move, right? Or maybe more. It's not a medium of exchange. So again, doesn't meet the tenants. And even though people call it a store of wealth, it's not a store of wealth because it's so volatile. So that volatility goes back to the roller coaster comment. For me, it's marketing right now. It is truly a speculative class.

Yeah.

Or a speculative investment. And so to me, the marketing is what's driving all of it.

So you mentioned it's a speculative investment, which I would agree with. I don't think that it meets the three tenants of traditional currency, which are unit of account, store of value, and medium of exchange. So, I don't think that it fits that, but I do think, particularly of late, that it may be useful as an investment. So, what role, if any, should cryptocurrency play in a wealth or retirement plan?

Right. So, first let's think about what is a retirement plan, right? A retirement plan is something that we need to depend on at a certain point in life, right? So we have a finite period where we can get prepared for retirement, and then there's a finite period, although it's one that's unknown, right, to be in retirement. So, we got to be ready, whether that's age 60 or 65 or whenever it is you choose to retire.

So I would say that as it relates to retirement planning, small allocation to Bitcoin, intentional core, core meaning a percent or two or three, not 50%.

Yeah.

Or even 100%. I've heard some people say, you know what, I don't even have a retirement account anymore. I just use crypto. And for some people that might work.

Yeah, if you're 25 years old, if you have a lot of time, and it could work. But that's a big play.

That's a highly speculative play, Spell. And I'm not going to just say that no, it shouldn't be in a retirement plan. I think it's okay. But diversification is not just simply adding more stuff. It's more about how do we derisk and still improve performance, right? Putting a roller coaster inside of your retirement plan may not be the smartest play, right? So, I think a small percentage, be intentional. And by the way, if extreme bouts of volatility bother you or keep you awake at night, you probably shouldn't do it.

I agree. Yeah, I agree. 7% swings in a day, that's a big swing. Particularly a huge swing, particularly for those who are really batting for the fences and maybe have an allocation of 100% in the crypto space.

You and I drink coffee, right? We like a hot coffee in the morning, maybe.

Yep.

Let's say that you and I said, "Let's, in the morning, let's go meet at a coffee shop."

Okay.

Let's go have an espresso and think about what we've got to do throughout the day and talk a little strategy. I don't want to have the first espresso and by the time I order the second one it costs 10 or 20 or 30% more, or maybe less.

No, who knows?

No, that's what crypto is all about. It can just change so abruptly. I can't imagine that being used as a currency at this point.

Yeah. Not saying that it won't become that, but it's high risk, high vol, or volatility. It's not there yet.

No, I don't think it is.

Okay. Phil, do you think investors understand the difference between owning crypto and actually using it as a currency?

No, I don't. I don't think that many people understand crypto, period.

Yeah, I think that's the third contingent that you mentioned already.

I think you're probably right about that. The reason I say no, they don't understand the difference between crypto from a transactional standpoint, crypto from an investment standpoint. I don't think they understand it because most people are not using it for transactions.

Mhm.

They don't really know how it's going to work.

Yeah.

And I can tell you straight away, if I'm selling goods, I probably don't want you paying me necessarily in crypto, if I have a fixed price on those goods that I'm selling. And I know I need to make a certain margin, unless I have the ability to hold that crypto once you pay me, right? Who knows? You could pay me and in a few minutes it could be worth a lot less money, unless I quickly turn it to currency, to a real currency, right?

So, no, I don't think they understand it. I think that people don't understand it purely because they're not using it as a currency. They are using it as an investment, calling it a currency.

Y.

And expecting that they will get to use it like a currency. But they're not using it that way today.

Right.

So no, I don't think the under... In fact, I think that a lot of more people should understand it before they dive into it. They should really, and blockchain technology in general, what it is, is not that hard to understand, but it does take some reading.

Right.

It takes some studying of what this thing, this crypto thing is. And it's not just Bitcoin, right? Could be Ethereum, could be whatever. There's so, gosh, there's hundreds.

Oh, yeah. There's a bunch.

There's a bunch. But no, I don't think people understand it.

Okay. What about the risk component of cryptocurrency? You've mentioned a little bit about that. So, do you think that crypto is a legitimate diversification tool for a portfolio, or is it a speculative, I'll call, bubble.

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It's hard not to think of crypto as being in a bubble because it's so expensive when you think about it relative to another investment, to another even speculative play. Something that's selling or trading at a hundred plus thousand dollar per coin, as they call it. There is no coin.

Yeah.

But that's a lot of money for one, as they say, Bitcoin.

Mhm.

Well, so is it speculative? Absolutely, it's speculative. Just look at the volatility and look at what we've been talking about. You go back and think through the volatility. 75% decline, that's speculative, right? If something can fall that much in a matter of days or weeks, that is speculative for sure, right? So I can't say for sure that it's in a bubble because it seems to keep going up, but it does have periods of severe sell-offs.

Yeah.

What's really interesting, Spell, I think, from just understanding who holds Bitcoin, you've got a lot of people who have bought it and they just hold it. They don't do anything with it. And so you really have thin trading on Bitcoin and it moves it around a lot.

Y.

Right now, if you look at the average investor, I believe, I was just talking to our chief investment officer and he was sharing with me that the average cost today... So this tells you how much Bitcoin's been traded, or crypto has been traded, for Bitcoin. He said the average was around 89,000 is the average price that current owners have paid, their basis.

That's right.

Okay. So, you think about where it went yesterday, down to 100. If it goes a little more, you're going to have a lot of people running for the exits because they're going to be fearful, potentially.

Yeah.

They don't want to drip into the red. What could that create? That could create capitulation. And if that happens, who knows where it goes. And that's happened more than once, right? So I think, is it in a bubble? I can't say. It feels like it certainly has plenty of room to fall.

Mhm.

But I think in terms of, you said, does it create diversification, or is it a way to do that? I don't know that crypto is a stable thing when it comes to someone's long-term investment strategy. Could it work? Yes. But when we talk about preparing for retirement or building wealth, I don't view this as a wealth builder. I view it as a small part of your overall plan that could create some wealth.

Yeah.

But I think if you go after it in that way, I don't think you get stabilization in a portfolio. I actually think you increase volatility. I think you increase your emotions and the chance for loss.

Yeah.

And so I don't know if it's a bubble necessarily, but I certainly think it's speculative.

Yeah.

And you better know what you're doing before you, because I don't think it's going to just all of a sudden create this great diversification that makes your portfolio more stable.

Phil, I've been reading pretty extensively about, it's not new, but the term decentralized finance is often synonymous with cryptocurrency. Do you think that decentralized finance in the cryptocurrency point of view or perspective, is that a good thing or is it going to amount to chaos? Meaning if it stays decentralized?

Well, first, if it's decentralized, I don't ever view it as a currency.

Okay.

Right. Because until it has something backing it, until there's something that backs it and it makes it a part of, whether it's a country or a central bank or whatever, then I don't view it as a currency. I view it as an investment.

Okay.

It's not a currency. The IRS says it's not a currency because the way they tax it, they say it's an asset.

Yep.

Yeah. So if you just look at how the IRS codes it right now, they say that it's not a currency at all. You sell some of it, you're gonna pay a capital gain. Capital gains one way or another, long-term, short term.

Right.

Well, that's an asset. I don't know another currency that if I buy it and then turn around and use it for a transaction that I have to pay tax on the use of the currency.

Right. Right. Right.

So decentralized I think is beneficial though in a lot of ways because it allows people to keep things private.

Yeah.

That has its own set of risks.

Right.

But I like some of that. Yeah, I'm not a rebel here, but I do like some of that.

Well, I mentioned that decentralized is not new. Cash is a decentralized currency. It's provided by a monopolistic institution in the Fed, but it is decentralized in that you and I can have an exchange without a third party present. Right? That is decentralized. So what a lot of people are intrigued by with cryptocurrency is that cash is ineffective for e-commerce. And so what people are pushing for, I think, is a decentralized electronic currency or cryptocurrency so that it can be used like cash is used.

The caveat to that, and the reason that I think it will remain private potentially, is the reputation risk that comes along with, say, the central bank providing a cryptocurrency, because who's to stop, which by the way is completely anonymous. Who's to stop a terrorist organization from utilizing the cryptocurrency to acquire something on the black market? And instead of having to do this in sort of a roundabout way, cash, which is old school and slow, it makes things immediate. That's what I fear the most. And I am sure that cryptocurrency is being used for that already and we just don't know it. The same way cash has been used for illicit activities or illegal activities. It just makes things much faster.

Well, it's not only faster. And yes, I think those kinds of transactions are happening. They are, the fact that that is not traceable or can be tracked.

Yeah, absolutely.

I think it's happening. We already see some of these, I'll call them pirates. You already see some of those people holding companies hostage.

Yeah, that's a good point.

Wanting to be paid in crypto.

Yeah.

Right. So that it can't be traced. That's, so now some people would say, well, that's what we want, so that the government doesn't know everything we're doing, because the government likes to know everything we're doing. You make a cash transaction of more than 10 grand, you go put 10 grand in the bank, the bank has to report that, right? So there are certainly things about it that I like, Spell, and decentralization is not, to me there's good and bad. I think transactions are already occurring like that. Will it get, will it evolve? Yes. Will it become a currency? I don't know.

I will say this, and this is just my opinion. Some people might agree, maybe not. But I will tell you this, with crypto, as long as there's buyers and sellers, it has the chance to really be a great way to transact. There's a great opportunity for someone to make a lot of money because buyers and sellers, it's a free market and it's a market of supply and demand, and as long as it's limited in supply, there's a chance people can make a lot of money.

Yeah.

On the other side of that, people can lose a lot of money. But so I don't, I think it's good in a lot of ways. But back to your point about how it gets used, if it becomes part of a central bank or if a government suddenly starts to take it over, then I would tell any investor, get out of it.

Yeah.

Because it's getting ready to be screwed up big time and it'll be worthless.

Yeah.

Look at our dollar. Think about how many dollars you have to spend today to get a Bitcoin.

Yeah.

Right. There's a problem there. Our currency is going down in value. And Bitcoin is not a currency. It's going up in value. Supply, demand.

Yeah.

But that concerns me, because every time a government around the globe has gotten a hold of any kind of thing like currency, they screw it up, because, as you well know, they get deeper and deeper in debt, because all of a sudden they've got a new toy that they can use to spend.

Yeah. You bring up an interesting point, and I wonder if our government could manage our budget a little better and we didn't run a trillion dollar deficit every year. We didn't have a $35 trillion cloud over our heads.

And just quick correction, oh, is it more than that now? I think we run about two trillion.

Oh, but we pay about a trillion in interest.

I wonder if there would be less reason for the general public to try to do things anonymously. There's no secret. People use cash as a means of escaping the eye of the government. Most fraud occurs in cash transactions. People evade the tax man because they're utilizing cash. And in doing so, I just wonder that the thought process behind those people. Is it, well, I'm going to evade the tax man because they have no idea what the heck to do with my tax dollars, which I tend to agree with.

Yeah. Right. I don't necessarily have lots of confidence in our government, right? They don't have the best reputation for being good spenders, or I should say being good stewards of money, of your money, of my money, of everybody's money who pays taxes. Track record is pretty bad.

Now, let me be very very clear. I'm not telling people to participate in fraud or tax evasion. Don't do that. I'm just simply exercising the thought experiment in that if we didn't have such poor financial leadership, would there be a different story? Would there be less of a emotional charge tied to cryptocurrency? I don't know.

I don't know. The emotional charge with crypto I think started way back when.

Yeah.

In 2010 when it came out, it was such an unusual thing. Highly unusual. So it had the hype effect.

Yeah.

Today, it has the get rich quick effect. People see it. It's speculative and people are buying it because they think they can make a fortune, and some do. Others are buying it and then they get scared as it starts falling and they sell it and they lose a lot of money.

Yeah.

So I think the emotional component is going to be there.

Yeah.

For a while.

Yeah.

But where crypto goes, nobody knows. I don't think it's going away. I think it's here to stay.

I think it's here to stay as well.

I think the message that I can give to people, to listeners, is simple. If you've got lots and lots of time till retirement and you don't have to worry about having enough in the bank tomorrow to start your retirement, then be speculative. Take a chance if you want to buy some crypto. There's nothing wrong with that, and there's plenty of ways to do it now. There's mutual funds, ETFs, things that you can use now to get into it very easily. You don't need wallets.

Yep.

All of that business, hot wallets, cold wallets, you don't need any of that.

ETFs, I think I was looking at a statistic earlier, own roughly 7 to 8% of all the Bitcoin in circulation.

Yeah.

Did you know that?

I didn't know the percentage, but I knew they owned a lot.

Yeah. It's pretty impressive, really.

Yeah. 7 to 8%'s nothing compared to the individual, right? But 78%'s not bad. And you can have exposure without having to go through all the hoops of, yeah, you can trade it, you can play it, for what it is. So I think do that, but ask yourself a question. If you're thinking about throwing a lot of money in crypto, the first thing is, are you doing it to get rich quick?

It's a good question.

And if you are, you're probably not ready to get in crypto.

Yeah.

That's number one. If you say, I simply want it to be a part of my investment program. I want a little bit of a speculative thing. I've got time, or I have the capacity for risk to take it. Then I think great, let's talk about sizing. Let's talk about your capacity. Let's talk about how to custody that. How do you want to hold it?

Yeah.

Then we can have a conversation. But if someone says, "Oh, I just want to do this. See if I can make millions of dollars." I think you can still make money in crypto. Supply, demand again comes to mind. But I think the idea of putting 10,000 in in 2010 and today being worth $1.6 billion, I think that train left the station a long time ago.

I think it left the station in 2010.

It left the station in 2010. But people still see that in there, and I worry that people are jumping in for the wrong reason.

Yeah.

But for a part of people's investment, or their portfolio, I think it's okay. Don't do it if it's get-rich quick, because you might get disappointed.

Well, we tell people all the time, don't invest with your emotions. And particularly with cryptocurrency, the fear of missing out bandwagon or herd mentality is quite large, and FOMO is huge right now.

It's huge.

But I think your advice is sound in that if you're doing this to get rich quick, probably not thinking about how to invest in cryptocurrency properly. If you're thinking, I know, not thinking, I should correct myself. If you know you have the capacity for risk that is specific to cryptocurrencies, I think you're spot on. Talk about sizing. Talk about how to custody that asset, which it is an asset. I think that's a great way to put it. It is taxed as a capital gain whenever you transact or sell. So that's, I think, sound advice.

My last question for you is, when someone says, "I'm thinking of putting my money into crypto," what do you tell them?

Yeah. Just be sure you understand what the rest of your life money needs to look like.

Yeah.

And if you've thought about where I need to be at a certain point, make sure you've thought about those things. Don't go to crypto and say, "Okay, wait a minute. I'm going to use this so I'll be ready at retirement."

Yeah.

You have to look at that literally through the lens of, what if it doesn't make me rich? Will I be ready? And if it does make me rich, will I be ready? You've got to answer both sides of that. There are two sides to this coin, right? And so I think a lot of people are forgetting that part. So if you just know that, understand what your required buckets are that you need to be filling so that you will be on track. Whether Bitcoin becomes a great thing for you or it disappoints you, know that.

Yeah.

And then you could get in. I'm not a big investor in Bitcoin. In fact, I've never owned it. Do I think about it? Yep, I do. But it's just not it. It hasn't been for me so far.

Yeah.

Doesn't mean I won't change my mind as a part of my portfolio.

Sure.

But I worry about people getting in for the wrong reason because FOMO, and they see all their buddies getting, or they think they're getting rich with all the marketing. Just got to be careful here. Get your priorities dialed. Make sure you're on track. Then think about the speculative. You don't put speculative first.

Right. Right.

It's like your mother always told you, don't eat dessert before dinner, right? Eat the dinner first. Get that part right. Get the nourishment. Then you can throw the sweet on top of it.

That's right.

Right. But let crypto be the sweet potentially, because it could al sour really quick.

Yeah, I think that's well said. I would encourage our listeners and viewers to have a conversation with a professional who is completely aware of your financial situation before you decide to invest in a cryptocurrency. It's very important that you don't swing for the fences, particularly if you don't have time to fall and then you can't fight another day. If you have everything else worked out, go for it. That's what makes you happy. But just know crypto is one of those things that can leave you licking your wounds. And it doesn't really care.

Yep. Yep.

Thank you for listening. We'll see you next time on We're Talking Money.