It’s fascinating after all this time how some people still consider cryptocurrencies as a kind of get-rich-quick lottery scheme rather than an investment.
And to be fair, with memecoins and other often gimmicky types of crypto-adjacent projects, it’s not hard to see why some people don’t take crypto seriously as an investment class. On the other hand, if we judged any other asset class based on its most egregious rule-breakers (Enron, for example), there just wouldn’t be any investible assets left.
Most of us are looking for growth in our retirement savings. Since risk and reward are joined at the hip in investing, that means we’re looking for the right level of risk. Nobody wants to gamble with their life savings.
So when we see cautious investors taking an interest in crypto, that’s worth a deeper look…
The institutional investors looking into crypto
You may not know this, but one of the most risk averse types of institutional investors are managers of pension funds, especially government pension funds.
These are people who are tasked with getting enough asset growth to handle the anticipated amount that they’ll need to pay out to pensioners while making sure that they don’t lose everything.
In other words, these people are not gamblers. They have to conserve their capital. They aren’t willing to bet it all on a baseless risk.
And knowing this makes it interesting to find out that state pensions are seriously looking into and moving into diversifying into crypto.
For example, Leslie Bonilla Muñiz with the Indiana Capital Chronicle writes:
Legislation letting cryptocurrency into public pension investments — and imposing new limitations on crypto ATM operations — has crossed the halfway point at the Indiana Statehouse and is expected to advance to the Senate floor next week.
And it’s not just Indiana. North Carolina is moving forward with diversifying into crypto for the state pension fund (that bill has been signed into law now although the state treasurer has yet to implement it). This movement isn’t limited to the U.S. either. A German pension fund for medical professionals is also diversifying into crypto.
You would think that this emphasis on stability would get people’s attention and that more people who are actual investors (not gamblers) would pay attention and get into the crypto market.
But many haven’t, yet.
Which begs the question…
Why haven’t more serious investors diversified with crypto?
Here’s the truth about that: Daily price movements tend to dominate financial coverage. Especially with a high-volatility asset class like crypto. Price surges and swoons are exciting! Both FOMO and FUD are sure-fire attention-grabbers.
In the case of crypto, financial media tends to focus on short-term price movement while completely ignoring the long-term overall upward price movement that many coins and crypto in general have experienced.
Need an example? Take, for example, an article at investing.com focused on one specific coin (which many readers would generalize to represent cryptocurrencies overall) and how it had reached a 15-month low.
Sounds ominous for that coin, doesn’t it? Based on that information alone, how many people do you think would completely avoid that coin because they panic based on the current price movement? The answer: Quite a few.
But people making investment decisions based on a single data point, rather than a long-term trajectory, might miss the 15-year upward price trend of that particular coin. Despite the 15-month low, bitcoin is still up +46% over the last five years.
See the difference? Taking a short-term perspective magnifies the ups and downs. Over-focusing on short-term price movements can lead you to be a reactive investor, rather than an active one.
Long-term, structural allocation decisions receive far less attention. Even though they’re much more meaningful for the sector.
Choosing the right perspective
I recommend that you be a long-term thinker and a rational decision maker. Retirement savings isn’t performance art, after all. It’s not the right place to express your feelings about the world. It’s much more prudent to assess your options without emotion. Having said that, diversifying cryptocurrencies may make sense for those who understand that the volatility is a feature and who also understand that diversifying within crypto and among multiple asset classes at the same time may be one of the smart investment decisions you can make.
Adopt the same kind of long-term thinking that pension fund managers employ to decide how they should diversify their investments. That is the right mindset!
Want to learn more about the benefits of crypto diversification? Learn more about the tax-advantaged approach with our free Crypto IRA Guide. Or, if you’ve done your due diligence and you’re ready to pull the trigger, you can get started here online in less than 10 minutes.
