Investment giant Fidelity recently announced that it would allow participants in the 401 plans it manages to invest up to 20% of their savings in bitcoin, if their employer wants to offer that option.
Cryptocurrencies have their uses, if exchanging in anonymous transactions is important to you. But crypto trading is also a subculture unto itself, with fanboys who see Bitcoin and its derivatives as a way of life, not merely a means of exchange. As the comedian J.P Sears put it, “Being a bitcoin advocate is like the veganism of financial world. You’ll find out where I stand on the matter within 11 seconds of meeting me.” This doesn’t seem the most appropriate mindset for retirement planning.
Yes, bitcoin has produced stratospheric rates of return in its short history, but crypto is hard to recommend for long-term buy-and-hold retirement savers when there is no clear rationale for its high returns, any more than Dutch savers of the 1600s should have placed their hopes in tulip bulbs. Bitcoin’s returns aren’t driven by its profits, as with an ordinary investment, but by the pure rising demand for bitcoin.
Outside of retirement accounts, capital gains, once realized through a sale, are taxed, and there is a $3,000 annual limit on the amount of capital losses that can be deducted from one’s taxes. None of this is what policymakers set out for retirement savers to do, and luckily most Americans stick with a buy-and-hold strategy. But it’s ironic that a retirement account is the best place to do something that retirement savers probably shouldn’t be doing in the first place.
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