Digital currency pensions are a new fashion in the US – but critics are warning retirement savers of the risk of losing all their money if they invest and the market slumps.
Thousands of investors want to take a chance of building retirement riches on crazy digital currency prices that continue to rise at breakneck speed
Huge losses that have wiped half the value off popular digital currencies such as Bitcoin, Litecoin and Ethereum in recent weeks should serve as a warning to savers, says fund managers and market analysts.
Companies in America are accepting cryptocurrency investments wrapped in a self-directed individual retirement account (IRA).
But instead of investing the regular contributions in regular stocks and shares, the money goes into Bitcoin or another digital currency.
CEO Trevor Gerszt, CEO of CoinIRA, one firm managing Bitcoin funds explained how the scheme works.
“The investor sets up a self-directed IRA, transfers money from an existing 401(k) or IRA account to the new IRA, then uses that money to purchase bitcoin or other cryptocurrencies. Those cryptocurrencies are held by a custodian, preferably in cold storage so that the assets aren’t vulnerable to hackers,” he said.
“Cryptocurrencies have tremendous long-term growth potential, as digital payments are the way of the future, so it’s only natural to think of cryptocurrencies as a possible retirement asset.”
Other pension firms are available to tie digital currency investments into IRAs.
Bitcoin frenzy as prices rise
In the UK, retirement savers can join the Bitcoin frenzy by staking cash into exchange traded funds and notes (ETF and ETN).
Steven Cameron, pensions director at Aegon, said: “Bitcoin and other crypto currencies are high risk and seen by some untrained investors as an exciting investment. Cryptocurrencies are at the extreme end of the risk spectrum, not supported by any underlying asset.
“Investors in crypto currencies should be prepared to lose all their capital and they have no place in mainstream pensions.”
In just over a year, the value of Bitcoin has soared from $900 to more than $20,000 then slumped back to $7,000. Ethereum, Ripple and Litecoin are much cheaper than Bitcoin, but their prices has followed the same trajectory.