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Crypto for retirement? Turning $1,000 into wealth

By RAIN EDITORIAL TEAM - Apr 28, 7:00 PM

All crypto investors engage with the market for different reasons. Some aim to raise funds to invest in items, or real estate, others are in it for more subtle results. But can crypto be an instrument for retirement, and if so, how is turning $1,000 into a hefty pension possible? In this article, we’ll try to answer all that, and showcase the steps we’d take towards such a target.

How crypto investing differs from traditional ways

Let’s start our thought process by comparing crypto investing with traditional assets, such as stocks, and determining if cryptocurrencies are actually the best way of saving up for retirement. The truth is, purely from an investing point of view, there is little to no difference in the experience of buying or selling traditional, or crypto assets.

What differs, however, is the fundamentals behind both classes. When investing in traditional assets, one votes for central control, financial and other performance analytics, as well as stakeholder value maximization. When engaging with crypto assets, however, one supports decentralization, blockchain technology, and unbiased utility on a global scale. With that said, we move on to what kind of returns could you expect from either class.

The gains crypto investors can expect

In this example, we’ll analyze the average yearly returns of the Vanguard’s S&P 500 ETF (exchange traded fund) that should represent a significant part of the stock market fairly accurately, and the returns of Bitcoin (BTC), the biggest cryptocurrency by market cap. The time frame used will be the past 10 years, which should provide enough data to work with.

Starting with our S&P 500 ETF, that produced a yearly unadjusted average return of around 14%, which is a healthy number in the world of traditional assets. Bitcoin, on the other hand, averaged a staggering 230%, which is almost twenty times greater than the other asset in this comparison. 

An important thing to consider here is that Bitcoin has likely reached a level where such percentage gains will not be sustainable on average for decades to come. However, even if we heavily discount its numbers, and count with one tenth of the values, we still arrive at a really healthy 23% return, which seems realistic by all means for a longer period, too. 

The key to turning $1,000 into generational wealth

Now that we know the returns of each option, let’s roll up our sleeves and calculate what $1,000 would turn into at each percentage. The key to that is a simple phenomenon that many are surely aware of, called compound interest. This essentially means that if year one had a return of 10%, and that extra value is left untouched on the account, year two will return the 10% of year one’s greater amount, and so on, resulting in exponential growth over a long period. 

With that in mind, let’s see the numbers. $1,000 at an annually compounded rate of 14% (S&P 500) will grow into $50,950 in 30 years, which, assuming we start investing at age 35, is the average time left until retirement. If you think that the 9% difference between Bitcoin’s discounted value and the S&P 500’s 14% can’t make a big difference, wait until you see it. $1,000 at an annually compounded rate of 23% (Bitcoin) will turn into a massive $497,912 in 30 years, which would be more than enough for most retirement plans. Add one extra percentage, and the value jumps to $634,819, while a 26% rate will already get to a whopping $1,025,926, thanks to the power of compound interest.  

Bitcoin (BTC) and crypto assets are among the newest forms of investments out there, but they have already seemingly proved that they are suitable for long-term returns, too. While crypto investments also carry a certain level of risk, it will be thrilling to see how a new generation of crypto-retirements will unfold in the distant future.

Rain is licensed by the Central Bank of Bahrain as a Category 3 Crypto-Asset Services Provider. We are headquartered in the Kingdom of Bahrain

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