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Employees may soon be able to invest 401(k) retirement funds in bitcoin

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PITTSBURGH (KDKA) — The cryptocurrency bitcoin may soon be available to employees with 401(k) retirement plans, but it’s not clear how many people will invest in this product.

Bitcoin is a kind of currency that most people do not really understand.

Fidelity Investments, the nation’s largest manager of 401(k) plans for some 20 million people, said it will soon give its customers the option of investing in bitcoin.

But what exactly is a cryptocurrency like bitcoin?

“It is a digital currency with no physical asset, that is an agreed-upon accounting system between parties, and it’s backed by mathematical formulas to prove the accuracy of the ledgers.,” Robert Morris University professor Marcel Minutolo told KDKA money editor Jon Delano on Wednesday.

Minutolo, who writes about cryptocurrency, admits it’s a difficult concept to understand because we are so used to thinking of currency as government-backed dollars and coins.

One analogy might be credit card transactions.

“I never actually have money that physically goes one way or the other, bills or coins. Cryptocurrency is similar to that,” Minutolo said.

Or think of your airline frequent flyer miles as currency, says financial advisor Jayme Meredith.

“Think of it as frequent flyer miles or credit card points,” Meredith said. “They are these electronic tokens that you can take your dollar bills and buy these things called bitcoins but substitute credit card points or substitute frequent flyer miles.”

While some early investors in bitcoin made lots of money, recently, its overall value is down 27 percent in the last 12 months.

Through Fidelity, employees can only invest in bitcoin through their 401(k) if their employer allows it, and the employer can limit bitcoin investment from 5 to 20 percent of overall investments.

So is this the future?

“Right now, you can book your Delta flight with cryptocurrency, with bitcoin. You can book a Marriott night with bitcoin. Some Burger Kings are already accepting bitcoin. I definitely believe this is the wave of the future,” says Minutolo.

Again, it’s not cash in the normal sense. It’s a currency registered online through a virtual wallet with no real government oversight, yet certain businesses will now accept it.

But is it really a smart investment for your retirement funds?  

“I think this is a wonderful option for some investors. This won’t be the right investment for every investor, but there are some this will make a lot of sense,” says Minutolo.

But bitcoin has dropped in value this last year, much worse than stocks and bonds.

“It’s very risky right now. There is no doubt about it,” Minutolo said. “The volatility is very high. So, most of the people who will invest in this will probably be younger, have longer investment horizons.”

But Meredith said buying bitcoin is highly speculative for everyone and very different from buying stock in a company “that has real buildings, real people, real products, and makes real dollar bills.”

“When you buy bitcoin, you are hoping that at some point in the future somebody buys it off of you for more than what you paid for it. And there’s absolutely no guarantee that that’s going to happen,” he adds.

The best advice for all is to research the subject yourself and consult with financial experts before you invest your retirement funds in anything.