Why digital currencies are a dicey bet for your retirement savings – CNBC

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Last spring, a man walked in to Dunston Financial Group in a jubilant mood. He told the firm’s founder, Lynn Dunston, that he’d put all of his savings and retirement funds into cryptocurrency, the digital tokens that can be traded from person-to-person anywhere in the world.

“It’s a real concern when you hear about anyone putting all of their money into highly speculative investments,” Dunston said.

“My general rule is, if you can’t understand it, don’t invest in it.”
-Lynn Dunston, founder, Dunston Financial Group

“My general rule is, if you can’t understand it, don’t invest in it,” Dunston said, adding that he’s been researching Bitcoin for months, and said he still doesn’t fully understand the system.

People tend to make more money, he said, when they know the patterns and history of their investments. It’s now accepted that mutual funds and exchange-traded funds (ETFs) will fluctuate. Market corrections are unavoidable, if unpleasant.

Cryptocurrency, on the other hand, is young and hasn’t yet settled into any predictable behaviors. For example, Bitcoin lost 20 percent of its value this month after the Chinese government shut down a major cryptocurrency exchange and banned companies from raising money with digital currency. That comes only weeks after a monster rally took its price to near $5000.

Cryptocurrencies generally operate free from most government regulations, and no one person or company makes all the rules. Even the person credited with creating Bitcoin in 2009, Satoshi Nakamoto, doesn’t control it.

For the most part, buyers and sellers of digital coins can remain anonymous, explaining why the currency is often used by hackers.

All of this freedom comes at a price: cryptocurrencies carry a connotation of danger — not a word most people want associated with their money.

“Just know part of the demand is being driven by criminals,” Dunston said. Yet if you can’t resist investing in it, Dunston said, make sure you risk only “fun money.”

“You could hit it big or you could lose it all,” he said. Bitcoin was trading for around $600 a year ago and is now going for over $3,000 a coin. The chart below shows the currency’s value over the last year.

Another digital currency, Quartz, was going for $1.95 in May and is now worth $.000037 a coin.

Christian Catalini, who studies cryptocurrency at MIT, said the volatility of cryptocurrency “will go away as the ecosystem matures.”

For now, Catalini said, investing in cryptocurrency is like investing in a start-up . “Ninety percent of your investments will be lost, and 10 percent could show returns,” he said. “This is not something regular consumers should be investing in at this stage.”

Many people argue that cryptocurrency shouldn’t be viewed as an investment at all. When you buy the digital coins, they say, what you’re really doing is backing a currency.

“You can’t invest in something that has no intrinsic value,” said Aswath Damodaran, professor of finance at the Stern School of Business at New York University, who writes about cryptocurrencies. “You can only trade it.”

And even when it’s understood as a currency rather than an investment, there are still problems.

“It’s not acting as a currency. The plumber has to say: ‘I accept dollars or Bitcoin.’ We’re no where near that comfort.”
-Aswath Damodaran, professor of finance at the Stern School of Business at New York University

“It’s not acting as a currency,” Damodaran said. “The plumber has to say: ‘I accept dollars or Bitcoin.’ Would you be willing to put Bitcoin in your pocket and leave for a one-year trip knowing you’re going to survive? We’re no where near that comfort.”

David Whalen, the owner of a technology company in Colorado, calls himself “an early adopter” of cryptocurrency. He also doesn’t agree with cryptocurrency being framed as an investment – but for more lofty reasons.

“If you’re looking at this like a stock market, you’re missing the point,” Whalen said. “It’s going to change the world.”

Perhaps. However, when it comes to your saving accounts and retirement funds, it may be best to wait out the growing pains.



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