Does a Bitcoin Fund Belong in Your Retirement Account?

With the Winklevoss Bitcoin ETF and SecondMarket's Bitcoin Investment Trust just months away from approval, it may be time to consider the addition of a Bitcoin fund to your retirement account.

At first blush, adding any sort of Bitcoin investment to a retirement account may seem overly risky. After all, the Bitcoin price soared 10-fold in about two months at the end of 2013, only to fall by about 50% by April. Bitcoin now trades around $660 - still far from its all-time high of $1,147.25.

Bitcoin funds

But Bitcoin can easily be considered an "alternative" investment. In recent years, many retirement investing experts have begun to advocate setting aside up to 10% of a portfolio for alternative investments. That covers almost any investment outside of stocks, bonds, or cash.

Some alternative investments, such as hedge funds, are beyond the reach of retail investors. But retail investors can buy alternatives like real estate and commodities, such as gold and silver.

That's where the new Bitcoin funds come in.

Once approved, retail investors will be able to buy the Winklevoss Bitcoin Trust on the Nasdaq like any other exchange-traded fund. The Bitcoin Investment Trust will only be slightly trickier, as it will trade on an electronic marketplace operated by SecondMarket and affiliated with OTC Markets.

Both of these Bitcoin funds will be based on the current Bitcoin price, and both funds will buy and hold actual bitcoins to back the shares that they sell.

In fact, it's possible now for accredited investors (individuals with at least $1 million in assets or net income of $200,000 a year) to add shares of the Bitcoin Investment Trust to their retirement account.

In a recent MarketWatch column, retirement investing expert and book author Jack Tatar said that he is adding Bitcoin to his own retirement account by purchasing shares of the Bitcoin Investment Trust (as an accredited investor himself, he doesn't have to wait.)

Tatar's move is noteworthy because he is a financial advisor not associated with the Bitcoin community. That he considers a Bitcoin fund a valid alternative investment shows just how much traction the digital currency is starting to get in the world of conventional finance.

Remember, retirement investing is among the most risk-averse segments of investing. No one wants to lose any significant portion of their nest egg.

But it should not be that much of a surprise that Bitcoin qualifies as a good alternative investment when you consider why retirement planners started recommending them...

Why a Bitcoin Fund Makes a Good Alternative Investment

In his column, Tatar noted that it was the financial crisis of 2008 that suddenly made alternative investments attractive to financial advisers.

The prolonged and dramatic crash of the markets in 2008 illustrated all too clearly the advantage of having a portion of your portfolio in some kind of alternative investment.

"Alternative investments are used in asset allocation models as a way to provide diversity, and in many cases, to limit volatility caused by market swings and events," Tatar explains in his MarketWatch column. "Most alternative investments have low to no correlation to market securities such as stocks and bonds. This provides some cushion for your portfolio should events create wide swings in the returns of these securities."

Bitcoin certainly qualifies as an alternative investment on that count. While volatile itself, the swings in the price of Bitcoin have been completely disconnected from all other markets.

Money Morning Defense & Tech Specialist Michael A. Robinson also thinks that a Bitcoin fund makes sense as an alternative retirement investment.

"I think putting a small amount of Bitcoin into a retirement account is a great idea for a lot of folks. We are in the early stages of the global digital currency revolution and the future is really unlimited as to where this can go," he said. "Bitcoin is the future of digital payments, so a time horizon of 10, 20, even 30 years is a great way to get into this field and ride it for the long haul."

And that's something that sets Bitcoin apart from most other alternative investments - its extraordinary appreciation potential.

The Bitcoin ecosystem is still in its infancy, which means its value could increase dramatically in a relatively short span of time.

Today the price of one Bitcoin is about $650. As more merchants decide to accept Bitcoin as payment, and as millions of dollars of venture capital continues to pour in, that figures to rise exponentially.

Some see the price of Bitcoin going to $10,000, $40,000, or even $1 million in the years to come.

So even a small investment in a Bitcoin fund could yield a big payoff down the line. And that would contribute tremendously to the goal of every retirement account - to make sure you don't outlive your money.

Have you considered investing in a Bitcoin fund? Would you consider adding a small amount of Bitcoin to your retirement account? Let us know on Twitter @moneymorning or Facebook.

The Winklevoss Bitcoin ETF is getting closer and closer to approval from the U.S. Securities and Exchange Commission. One of the few questions remaining is what its ticker symbol will be. Here's why the ticker for the Winklevoss Bitcoin fund matters...

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About the Author

David Zeiler, Associate Editor for Money Morning at Money Map Press, has been a journalist for more than 35 years, including 18 spent at The Baltimore Sun. He has worked as a writer, editor, and page designer at different times in his career. He's interviewed a number of well-known personalities - ranging from punk rock icon Joey Ramone to Apple Inc. co-founder Steve Wozniak.

Over the course of his journalistic career, Dave has covered many diverse subjects. Since arriving at Money Morning in 2011, he has focused primarily on technology. He's an expert on both Apple and cryptocurrencies. He started writing about Apple for The Sun in the mid-1990s, and had an Apple blog on The Sun's web site from 2007-2009. Dave's been writing about Bitcoin since 2011 - long before most people had even heard of it. He even mined it for a short time.

Dave has a BA in English and Mass Communications from Loyola University Maryland.

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