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Should you put cryptocurrency in your retirement account?

A scene from the Bitcoin 2021 Convention, a crypto-currency conference held on June 04, 2021 in Miami, Florida. Joe Raedle/Getty Images

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Cryptocurrencies like Bitcoin, Ether and others are moving closer to becoming part of the mainstream financial environment, including retirement savings.

The cryptocurrency exchange Coinbase recently announced it’s partnering with 401(k) provider ForUsAll Inc. to allow workers who use its savings plans to invest a small percentage of their retirement contributions in a variety of cryptocurrencies.

It’s possible that more accounts could offer crypto options, but is it worthwhile to invest part of your nest egg this way?

Marketplace Senior Economics Contributor Chris Farrell advises you to think twice before making that decision. The following is the edited transcript of a conversation between him and “Marketplace Morning Report” host Sabri Ben-Achour on why you should wait before putting your 401(k) savings into cryptocurrency.

Sabri Ben-Achour: So that didn’t take long for people looking to crypto towards retirement. Are people actually doing that?

Chris Farrell: Oh, yes, people are. I mean, remember the … what’s the adage — “Follow the money”? I mean, look, there is some $23 trillion in [individual retirement accounts] and 401(k)s, and financiers — no surprise here — keep developing ways to make it easier to add crypto to your nest egg.

Ben-Achour: How are they encouraging people to do that? How is that logistically done?

Farrell: OK. So the main avenue is what’s called a self-directed IRA, which is a special version of the retirement plan. And then it can hold a variety of alternative investments, which are normally prohibited from an IRA, a regular IRA. And then, you know, quite notably, ForUsAll, it’s an investment platform for small businesses, combined forces with Coinbase to enable employers to offer their workers cryptocurrencies in their 401(k) plan so employees could transfer up to 5% of their retirement balances into crypto. And employees will be able to buy, hold and sell over 50 different cryptocurrencies.

Ben-Achour: Is putting cryptocurrencies, even a small percentage, into your retirement portfolio, is that a good idea?

Farrell: No, I don’t think it’s a good idea. Now, I’m gonna get a lot of complaints for that answer from passionate advocates for investing in crypto. But look, the crypto ecosystem is noisy, it’s volatile, it’s opaque. And we’re talking about your retirement savings. This is money that should add to your economic security in your elder years. And over the past four decades, during this 401(k) era, the evidence is overwhelming that workers saving for their retirement are better off as buy-and-hold investors, in low-fee investments, I mean really low-fee investments, rather than actively trading their accounts. Trying to beat the market, whether it’s stocks or crypto, is a loser’s game.

Ben-Achour: I guess we can think about this two ways. One is it’s people putting money into something risky. On the other, it’s leveling the playing field because you know, like the big institutional investors can play around with crypto if they want to, why not us little people? How do you see it?

Farrell: So, you know, there’s a lot of writings about the democratization of finance. And you know, you have to call me a skeptic because I don’t think you can ever underestimate the ability of financiers to transfer money from your pocket into their coffers. I mean, look, the limitations of crypto, they’re formidable, they’re unsettling, and the crypto market isn’t going to disappear. But it’s also highly uncertain how it’s going to evolve.

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