You may have seen the term “bitcoin” in the financial news recently.Actually, bitcoin has been around since 2009.

On 12/11/17, bitcoin futures began trading on the Chicago BoardOptions Exchange (CBOE). Bitcoin is estimated to have a currentmarket capitalization of about $300 billion. After reaching a highof $18,674 per bitcoin in December, it dropped as low as $7,100 inearly February and was trading at about $8,750 per bitcoin as of2/12/18 (see chart below).

A retirement plan mandated to protectbeneficiaries' assets should avoid investing in bitcoin due to itsvolatility, short history, regulatory risk and securityconcerns.

It is also likely that most of us as individuals will never usebitcoin or fully understand it. However, it is important to beaware of bitcoin's evolution and where it is headed in thefinancial world.

Bitcoin differs in many respects from our traditional currencyand banking system as we know it. Some key differences:

• Bitcoin, while digital, is also a virtual currency.That means that while it can be exchanged for other currencies andgoods, it is unregulated and depends only upon the online personswho use it and trade it.

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  These persons are not known to each other; therefore, trust is akey factor. On the other hand, banks, which hold currencies indigital form, are regulated, serve as a “middleperson” for monetarytransactions and provide backing for currencies.

• Whereas individual transactions of more traditional currenciesare recorded on bank ledgers, ledgers for bitcoin reside in acomputing cloud database known as a “blockchain.” In theblockchain, transactions are verified and designed to betamper-proof via use of complex identifiers. Tech companies such asIBM are starting to enter the blockchain business.

• While users generally pay a fee for credit card and otherfinancial transactions, proponents claim that bitcoin transactionsare virtually costless.

• Money (i.e., dollar currency) can be created through governmentissuance and Federal Reserve policy. Bitcoin is created by onlineusers known as “miners.” Unlike gold miners, users introduce newbitcoin digitally through computer algorithms.

• As with bank or credit card accounts, bitcoin sites are subjectto hacking. Unlike credit cards, if bitcoin is lost, it cannot bereplaced and requires a complicated passcode to recover.

Being a relatively new and not-well-known digital asset, thefuture structure of bitcoin is uncertain. In addition to beinghighly volatile (despite its recent spikes in value), bitcoin has ashort track record.

It is also subject to regulations restricting or banning the useof bitcoin as well as disclosure requirements (in fact, South Koreahas recently imposed restrictions on bitcoin trading in response toexcessive speculation).

However, bitcoin is expected to continue to become a part of theglobal financial landscape, and could increase in popularity as analternative payment medium for millennials and as an investment forspeculative investors.

NOTE: Information presented herein is for discussion andillustrative purposes only and is not a recommendation or an offeror solicitation to buy or sell Bitcoin or any othercryptocurrencies. Past performance is not a guarantee of futureresults.

Frederic Slade is AVP-Senior Director, Investments forPentegra Retirement Services.