After hearing stories of people who made tens of millions of dollars from Bitcoin investments, it's fair to wonder whether it's possible to create your own windfall, and retire either much earlier or much more comfortably than you would have otherwise. But is cryptocurrency a reliable enough investment to count on for retirement?

Cryptocurrency Today

Let's start by evaluating what the cryptocurrency world looks like today. Bitcoin remains the most popular type of crypto, with a market cap around $116 billion, though it hasn't been able to get back to its peak of $20,000 at the end of 2017; most of this year, it's fluctuated between $5,000 and $10,000.

Now that it's had sufficient exposure to the general public, more people are growing accustomed to a potential future built on digital currency, but people aren't getting excited in fits in spurts like they were in 2017, which is largely why the price has stabilized.

There are also a number of emerging altcoins--different types of cryptocurrency with different advantages and disadvantages over Bitcoin. For example, there's Lightning Bitcoin, which is built around fast transactions and low transaction fees, Litecoin, a peer-to-peer cryptocurrency, and Ethereum, which allows its technology to be used for other crowdsourced projects.

You can think of crypto today in terms of the following main qualities:

  • Accessibility. It's pretty easy to start investing in cryptocurrency, though it's not as straightforward as making stock trades on a brokerage platform. If you want to purchase coins outright, you'll need to get a crypto wallet, which is a multi-step process. Or if you want to mine coins, you'll need to build yourself a mining rig--which requires significant technical expertise (or your willingness to join a crowd-mining platform at the expense of some ROI). Still, with so many different coins to invest in and so many different ways to invest, anyone can get involved.
  • Volatility. Crypto's greatest strength in the eyes of many investors is also its greatest weakness: its volatility. Despite being around for several years, this is still a relatively new investment, and one that inspires both excitement and fear in its investors. You can expect prices to fluctuate pretty wildly for the foreseeable future, which means your small investment could be worth a fortune during a period of growth, or you might lose almost everything during a period of decline.
  • Long-term potential. Economists are divided on whether or not cryptocurrency will ever become a mainstream form of currency. If it does, you can expect the value to rise significantly, and have ready access to a new mode of spending. The long-term potential of any coin is going to depend on whether or not it's accepted by mainstream purchasers.

Investing for Retirement

So how do these qualities fare as an avenue for retirement?

Ultimately, there are three dimensions you'll need to consider in your retirement investments:

1. Long-term growth. If you're more than a few years out from your target retirement date, you should consider the long-term growth potential of your investment. Ideally, you'll multiply your initial principal multiple times over. There's certainly potential for crypto here, as all those Bitcoin millionaires can attest, but nothing is set in stone. However, with so much historical precedent for the S&P 500 (and other industrial averages), it's hard to compare crypto to mainstream investments. We just don't know what the growth potential truly is.

2. Consistency. For individuals close to retirement, consistency is vital. You need to feel confident about the returns you'll get year over year, and may wish to take regular dividends as a form of recurring income. Unfortunately, at this time, crypto can't afford you this. Popular coins don't offer any kind of dividend or guaranteed interest rate to their investors, and their growth rate isn't steady enough to count on for retirement income.

3. Risk mitigation. It's also important for individuals close to retirement to take fewer risks. Investing all your wealth into one type of asset, even if it's worked well for you in the past, is dangerous. Instead, it's a better idea to invest in multiple different assets and opportunities--that way, no single loss will devastate you, and you'll be exposed to many different opportunities for growth. Crypto can fit easily within this model.

The Bottom Line

Crypto is too volatile to rely on for any type of consistent return, but its promising future and accessibility make it a prime candidate for diversifying your portfolio. It's unwise to count on crypto to make you rich, or to rely on solely as an investment for your retirement, since this approach is akin to playing the lottery, but if cryptocurrencies are a small part of a much bigger, diversified portfolio, they could help you see more consistent returns overall.