Growing a retirement nest egg is no easy feat post-recession.
But in 2013, a tantalizing new investment vehicle exploded onto the scene, making as many cyber millionaires as the Twitter or Facebook IPOs, showing astronomical returns, and leaving governments around the world scrambling to piece together monetary policies to govern its use.
That option: Bitcoin— a decentralized, mathematically-mined cryptocurrency created in 2009. But will it fund your retirement years? For most money managers, it’s way too early to tell—the currency is so new and so volatile that predicting its future value is a fool’s errand. Still, like any gold rush, several investors are staking their claim. And it’s not like Baby Boomers’ current retirement options are looking very healthy.
Bitcoin grabs headlines for it's staggering price swigs - in Jan 2012 the average price was $5.48/coin, Jan 2013 it reached $20.41 and Jan 2014 has already seen highs of $1,040 and lows of $800 in the first week of the month. For the coin to gain or lose hundreds in value in a day has become commonplace, and while fun to watch as a bystander, the question for this with skin in the game is always 'will it crash'? Even supposed experts are unsure, with some Wall St analysts who posit the coin could reach $98,500 each, while a finance professor targets the price of $10 a coin by mid-2014. At its current trading value, it could be a gamble that pays off handsomely.
Chart of Bitcoin prices Jan 7, 2013 to Jan 7, 2014
The value may be unstable, but it has trended mainly up and to the right, with crashes followed by climbs past the previous high. That's a big reason why the finance and tech communities are full of BTC Belivers. For millionaire twins Cameron and Tyler Winklevoss, both the math and the money have appeal says Tyler, who with Cameron recently filed to launch a Bitcoin Exchange Traded Fund(ETF).
“In terms of the 9 characteristics of money, Bitcoin (the asset) does a better job of fulfilling them than gold. On top of it, Bitcoin (the protocol) is a payment platform that bitcoins transact on instantly and for free,” he says. “Bitcoins are like gold bars with wings. That is why I, and so many others, view bitcoin and its network as gold 2.0.”
Other investors like Adam Draper who runs Boost.vc, an incubator with a strong Bitcoin focus, point out that as strange as it may sound to replace money with bits and blips, in large part this was happening before Bitcoin. “93% of the US currency is already digital, Bitcoin is just a better system for maintaining value and transacting,” says Draper.
Indeed, some startups in the space have gotten into the retirement business already via customer demand. Vault of Satoshi, a Canadian based currency exchange, was surprised at the tech savvy seniors who have signed up. Founder Michael Curry says he has received a lot of interest from older people, and had to actually reach out to them and ensure they wanted to trade in Bitcoin. “You don't see a lot of older tech savvy people signing up for Bitcoin exchanges,” the founder said, noting that 4% of his user base is over the age of 50. “I’m glad to see that people are eager to learn how to trade something so innovative in their later years.”
Of course, like any investment, the risk is proportional to the reward. And, Bitcoin advocates will argue, traditional investment options have drawbacks of their own. The 76 million-strong Baby Boomer cohort is aging into retirement with little saved, and 60% of those over the age of 55 have less than $100k set aside with a limited time line to reap returns before leaving the workforce. This reality is compounded by the scars of a recession that that saw investment implosion to the tune of $2.8 trillion lost from 401ks and individual plans. Massive unemployment has been an unpleasant specter over the economic recovery for those ages 55-64 with the unemployment rate at levels far higher than 2007 and the number of food stamp recipients doubled.
What about other asset classes? Stocks have been rising in price with so few ties to their underlying value that many predict another bubble burst(and perhaps recession) in the next few years. 61% of those aged 57-62 have a home mortgage, so selling Real Estate a profit becomes harder.
Gold is an option for the last generation for whom the term “Gold Standard” was literal. Analysts expect prices to hold for the next few years making it a possibly stable bet but with little chance of explosive upside.
For those considering coins, the best place to start is Bitcoin.com to learn about the currency and risks. Coinbase and Vault of Satoshi both allow users to purchase Bitcoin with dollars and other fiat currency. Coin Market Cap shows the price history of various cryptocurrencies - Litecoin and Peercoin were in the press recently and there are a host of others, all with various pluses and minuses but none have ascended the price charts like Bitcoin.
Of course, none have plummeted as far either.