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Cryptocurrency is a form of currency that is currently decentralized, tracked and stored using a blockchain system. Crypto is commonly regarded as the method to get rich quick. Since its introduction in 2008, cryptocurrency has made success stories of various individuals who invested early, made profits, redeemed these profits, and retired on the back of these profits.
This success story has motivated most of us to ask: Can I do the same? Can you retire with crypto? The simple answer is yes. You can have financial freedom if you invest in cryptocurrencies.
Between March 2012 and March 2020, the most popular cryptocurrency, Bitcoin, yielded 254,445% returns to investors, which is around 50,000 a year in passive income. At the same time, the number of Bitcoin transactions per month increased approximately from 5,000 to 10,000,000. These numbers go a long way in showing the high volatility of cryptocurrency. Therefore, it can be concluded that it is possible to retire using cryptocurrency.
Which are the most popular Cryptocurrencies?
Cryptocurrencies are ranked by their market capitalization, i.e. the total number of shares a currency has multiplied by its price. Therefore, a cryptocurrency with higher transactions may have a higher value and higher market capitalization. According to Nasdaq, the top 10 cryptocurrencies are ranked accordingly:
- Bitcoin (BTC)
- Ethereum (ETH)
- Stellar (XLM)
- Binance Coin (BNB)
- Cardano (ADA)
- Dogecoin (DOGE)
- XRP (XRP)
- Litecoin (LTC)
- Bitcoin Cash (BCH)
- Chainlink (LINK)
Various other altcoins are still emerging. Therefore, choosing the right cryptocurrency to invest in is a crucial decision. You should also consider looking at the various charts and analysis reports. These break down the performance of the crypto asset and can help you determine the long-term potential. Your final choice of cryptocurrencies for retirement savings depends on various factors.
Factors that should affect your choice of Cryptocurrency
- Accessibility
Investing in the stock market can be as simple as approaching a broker or opening an account on a stock trading platform. However, for investing in crypto, while you can easily open an account on a digital exchange, the multistep account opening process will include detailed verification of your finances before you are granted access to a wallet.
Alternatively, if you wish to mine digital currencies like Bitcoin, you will need the technical expertise to do so. For different cryptocurrencies, the accessibility is different.
- Volatility
Volatility is regarded as a cryptocurrency’s greatest strength and weakness. Even though cryptocurrencies were introduced some years ago, they aren’t as simple as traditional investment methods. This makes investors both excited and scared to make a trade. This conflict results in higher volatility, making cryptocurrency much harder to predict than any other investment method.
Investing in cryptocurrency means you can expect the value to fluctuate quite widely. This means your small investment could yield a fortune or a low result. However, in the recent period of time, it has been incredibly difficult for anyone to determine what the value of your investment portfolio will be in the future.
- Future potential
While the number of Bitcoin trades per month has increased in the past decade (as shown by the table above), it still cannot be conclusively said that cryptocurrency will replace paper currency. If it does, the value of cryptocurrency will skyrocket in the future. However, if it doesn’t, you can expect it to rise slower. The long-term potential of any cryptocurrency is currently undetermined. You cannot invest in Bitcoin or any other crypto for the short term; therefore, volatility is an important factor.
These three factors will influence the value of cryptocurrency for several years to come. If you plan to retire using cryptocurrency, you should follow a strategy. For this article, we will talk about all cryptocurrencies in general. However, you may have to tweak the investment strategy according to the final cryptocurrency you choose.
How to realistically retire with Cryptocurrency in 5 Years?
- Determine your expenses
The first thing to do is determine how much money you require per month. This should include all expenses, including household items, necessities, and leisure goods. It is also recommended to assume a small emergency amount in case of a medical emergency. Let us assume your annual expenditure is INR 500,000.
- Determine the amount of money you need to retire
Your retirement plan and retirement funds should be enough to sustain your lifestyle. The traditional method of calculating is 25 x annual expenditure. Therefore, according to the above number, to sustain your lifestyle at the same standard of living, you will require INR 1.25 crore. You need to maintain a withdrawal rate of 4% annually for INR 1.25 crore to sustain you.
However, this number (25) assumes you retire at 60 and live up to the age of 85. If you plan to retire early with crypto, you need to increase this number. For example, if you retire at 40, you will have to multiply your annual expenditure by 45.
- Gather the amount
The next step is to gather this amount. Very few people have this amount waiting in the bank account. You may have to decrease your expenditure or increase your income to collect this amount. Researching and using multiple avenues of income is a good way to gather money.
You can save money faster by cutting down on any additional expenses that you don’t need. Instead of buying an INR 250 coffee every day, buy a coffee machine that’ll serve you for several years. You can save as much as INR 150 per day by making the replacement.
- Determine risk tolerance and fix a percentage
Ideally speaking, the younger you are, the more risk you can take. However, this may not always be the smartest strategy. Analyzing your risk tolerance is a good start. It isn’t recommended to depend 100% on cryptocurrency for your retirement; therefore, diversification is recommended. This can help you create and manage your portfolio. And finally, once you have decided on the investment percentage, you can maintain this.
Booking your profits regularly ensures you can secure your position regularly, and then It is possible to retire with cryptocurrency. However, the decision to do so should be taken after considering the various risks of the investments and not only the rewards.
Though cryptocurrency has growth potential, the future of this market is undetermined. Therefore, investments in cryptocurrency should be made after careful analysis and understanding of the values, advantages and disadvantages. With careful analysis, you can retire in your 20s, 30s or even 40s with cryptocurrency.
Disclaimer: Cryptocurrency is not a legal tender and is currently unregulated. Kindly ensure that you undertake sufficient risk assessment when trading cryptocurrencies as they are often subject to high price volatility. The information provided in this section doesn't represent any investment advice or WazirX's official position. WazirX reserves the right in its sole discretion to amend or change this blog post at any time and for any reasons without prior notice.
