Why Older Generations Are Investing In Bitcoin

Bitcoin is a decentralised digital currency, free from government or bank control. Its popularity has soared in recent years, especially among younger generations. However, the question remains: do older people invest in Bitcoin?

The short answer is yes, older people do invest in Bitcoin, but they are in the minority. According to a Coinbase survey, 30% of millennials and 36% of Gen Zers own cryptocurrency investments, while only 7% of Bitcoin owners are aged 55 and above. This could be due to younger investors having more years ahead of them to recover from potential large losses. Older investors tend to be more risk-averse, as they have less time to recoup losses and a greater need for financial stability.

However, some older people are willing to take the risk, and a small percentage have even made substantial gains through Bitcoin investments. For those considering investing in Bitcoin, it is important to carefully assess the risks, consult professionals, and avoid putting critical savings at stake.

Bitcoin's extreme volatility

Bitcoin is known for its extreme volatility, which can be a deterrent for older investors. Volatility refers to changes in the price of an asset, and while it can be healthy, with steady increases or decreases in price within a general range, it can also be extreme, with rapid price movements in either direction. Extreme volatility is often associated with market chaos, uncertainty, and loss, and can be caused by investors and traders placing bets that fuel further price volatility.

Bitcoin's volatility is much higher than that of major currencies and exchange rates. It is almost ten times higher than the volatility of major exchange rates such as the US dollar against the euro and the yen. This high volatility can be detrimental to its potential role in investment portfolios, as it can lead to significant losses.

The extreme volatility of Bitcoin also affects its potential to function as a currency. For Bitcoin to work as a currency, it must be stable or backed by a government. However, due to its high volatility, most empirical studies classify Bitcoin as an investment rather than a currency. The volatility of Bitcoin prices can make it challenging for individuals, especially older investors, to use it as a medium of exchange or a unit of account.

Additionally, the extreme volatility of Bitcoin can create challenges for individuals looking to invest for retirement. Volatility is a significant risk for retirees, as they want to minimise fluctuations and ensure their investments last. The horror stories of Bitcoin's volatility, such as losing 83% of its value between December 2017 and December 2018, can be off-putting for older individuals.

While Bitcoin's extreme volatility can be a concern, it's important to note that cases of extreme price volatility are rare, and what we typically see in the markets is moderate or healthy volatility. This type of volatility allows investors and traders to respond to information, news developments, and broader macroeconomic sentiments.

Despite the risks associated with Bitcoin's volatility, it's worth mentioning that Bitcoin has minted many millionaires, and its long-term price trend is positive. Some experts believe that Bitcoin's volatility will reduce over the years, and as the asset class matures, it may exhibit more stable patterns.

Risk and volatility

Bitcoin is a risky investment for older people due to its high volatility. Volatility refers to the degree of change investors expect from an asset. While uncertainty in the economy is usually considered bad news for investors, volatility is a bigger concern.

Bitcoin's value can fluctuate significantly in a short period. For example, it lost 83% of its value between December 2017 and December 2018 and 64% of its value in 2022. Such volatility can be challenging for retirees, as they are typically drawing from their investment portfolios, and a substantial loss during these years may be difficult to recover from.

Additionally, older investors generally have a lower risk appetite as they have less time to recoup losses. As a result, they tend to favour more stable and traditional investments like dividend-paying funds, bonds, or cash.

However, some older investors are comfortable with the risk associated with Bitcoin. These individuals may have a higher risk tolerance, a diverse investment portfolio, or sufficient financial resources to withstand potential losses.

To manage the risk of Bitcoin's volatility, investors can employ strategies such as diversification, hedging, and proper risk assessment. Diversifying one's portfolio by investing in multiple cryptocurrencies and other asset classes can help reduce the impact of Bitcoin's price fluctuations. Hedging involves taking offsetting positions, such as short-selling Bitcoin futures, to protect against potential losses. Proper risk assessment involves understanding the difference between uncertainty and volatility and making investment decisions based on the potential magnitude of price changes rather than the likelihood of change.

While Bitcoin's volatility presents a risk, it's important to note that all investments carry some level of risk. Bitcoin's underlying blockchain technology also helps mitigate certain risks associated with traditional payment methods, such as chargebacks and fraud.

Cash flow

There are several ways to generate cash flow from cryptocurrencies like Bitcoin, even when the price is not rising.

Staking

Staking involves validating transactions on a proof-of-stake (POS) blockchain network, which is more energy-efficient and faster than the traditional proof-of-work system used by Bitcoin. By staking some of your cryptocurrency, you become a node validator, promising to validate transactions honestly. POS blockchains reward stakers with dividends or new tokens, typically generating a return of 5-15% per year.

Yield Farming

Yield farming is an advanced method of generating new cryptocurrency from your existing crypto holdings. It involves placing your crypto assets into a liquidity pool, where they facilitate trading, lending, and borrowing by other crypto networks. Investors earn a share of the fees collected for these activities, proportional to their share of the liquidity pool. Typical returns range from 5-20% per year, but some tokens or pools can offer returns as high as 50-150% per year.

Lending

Lending out your crypto assets is a simple and safe way to generate consistent cash flow, similar to how banks lend out dollars and collect interest payments. Popular exchanges like Celsius and Nexo offer interest rates of around 5-15% per year, which is still higher than most bank accounts.

Stable Coins

To avoid the volatility of cryptocurrencies, you can trade your dollars for stable coins like USDC, USDT, or UST, which are pegged 1-to-1 to the US Dollar. By staking or lending these stable coins, you can earn interest of 5-20% per year while maintaining the stability of your initial investment.

Age and time to recover from losses

One reason for this age disparity could be that younger investors have more time to recover from potential losses. As one Reddit user points out, the credo for older investors is to "avoid catastrophic losses at all costs because we simply have less time to recover." Older investors are more risk-averse as they have less time to recoup any losses they may incur.

On the other hand, younger investors may have more time to weather the volatility of Bitcoin and other cryptocurrencies. They can afford to take on more risk as they have a longer time horizon to make up for any potential losses. This is not to say that older investors should completely avoid Bitcoin, but rather that they should carefully consider their risk tolerance and financial situation before investing.

Additionally, the time it takes to recover from losses in the Bitcoin market can vary depending on market conditions. Bitcoin is known for its volatility, and there have been periods of significant price drops followed by periods of recovery. For example, Bitcoin lost 83% of its value between December 2017 and December 2018 but has also seen massive gains that have made many investors millionaires.

It's important to keep in mind that Bitcoin investments can be lost forever if access to the private keys is lost. There are firms that specialize in recovering lost or forgotten private keys, but there is no guarantee of success. Therefore, it's crucial for investors of all ages to safeguard their private keys and backup their wallets to prevent permanent loss.

Regulatory oversight

The US handles the second-largest volume of Bitcoin, roughly 26% according to Cryptocompare, and regulators have taken a watchful approach toward "cryptocurrency money transmitters". However, most states have yet to consider legislation on cryptocurrency, and only a number of states require a money transmitter license.

In 2023, the European Union introduced the world's first comprehensive cryptocurrency regulations, the Markets in Crypto-Assets Regulation (MiCA). Any company issuing or trading cryptocurrency will need a license, and from January 2026, all service providers will have to obtain the name of senders and beneficiaries, regardless of the amount being transferred. Further, any self-hosted wallets holding over 1,000 euros will need to undergo wallet ownership verification for transactions.

In Asia, Japan is open to crypto use, recognizing it as a type of money and legal property. The country's Financial Services Agency manages crypto and yen transactions, and citizens are free to own or invest in crypto. South Korea is also progressing with regulation for crypto and other virtual assets after the Virtual Asset Users Protection Act was passed in 2023. The regulation strengthens user protections by adding requirements around record-keeping and transparency. China, on the other hand, is one of the strictest countries when it comes to cryptocurrency, with bans on exchanges, trading, and crypto mining.

In Brazil, the central bank was made the supervisor for crypto assets in June 2023. The Cryptoassets Act sets rules for any company providing services linked to virtual assets, with a central aim of preventing scams related to cryptocurrency. The regulation outlines what constitutes criminal practices in the use of crypto and outlines penalties that will be enforced if crypto is used in fraud or money laundering.

The International Organization of Securities Commissions has laid out 18 recommendations for global rules on managing crypto and digital assets, and the World Economic Forum's Pathways to the Regulation of Crypto-Assets details key regulatory developments.

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