Do cryptocurrencies as an asset class show promise for realizing retirement goals?
I have been asked about cryptocurrencies, and whether we would consider them for our portfolios. The immediate answer is probably not.
In the current form, digital currencies have developed very interesting technology, but have not evolved sufficiently for our purposes. Our funds are designed for goal-based investing which involves creating a plan for future consumption (a goal such as retirement). Our requirement for investment is predicated on confidence in a future value and the stability of its growth profile.
Bitcoin advocates often reference a finite number of coins (21 million) as opposed to US Treasury securities which increase with US debt growth. However, there shouldn’t be any surprise in the immense growth to over 20,000 currencies in existence according to the Financial Conduct Authority. There is a clear attraction to the value of the distributed ledger technology. The important distinction for me is US Dollars and treasury securities are backed by the full faith and authority of the US government. This includes the right to tax and protect its citizens.
The Future of Digital Currencies
In a future form, digital currencies are likely to be backed by tangible assets. Fiat currencies were once backed by gold. There is no reason a digital coin couldn’t represent an ounce of gold. It is conceivable that all of Las Vegas could issue a digital currency for use in any casino, backed by the cash in their vaults. Effectively, they could create their own clearing system.
Rewards programs could centralize around a digital asset that could be used for travel, dining, fuel, or any tangible benefit. Some transit systems already use a simple digital currency that tracks a series of “transactions” and enable transfers from one route to the next while reducing the value in your card based on the consumption of services. Credit card companies dominate point-of-sale transactions and it would be natural to develop a digital currency. Conversely, a new entrant could turn VISA into the next Blockbuster. Central banks are also developing a digital currency, presumably to maintain control and oversight of monetary assets.
Would we invest in cryptocurrencies? Maybe. Provided they are backed by tangible assets that can be used in retirement or on our journey to get there.
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