Not everyone is convinced that the risks of bitcoin in a self-directed IRA outweigh potential payoffs. (Photo: Shutterstock)

A bitcoin IRA? What is the world coming to?

The cryptocurrency has become so popular—despite fears of instability, possible illegality and potential loss—that its market value is now courting $10,000, even as industry heavyweights caution investors to avoid investing in it, particularly in retirement accounts.

But not everyone is convinced that the risks of bitcoin outweigh its potential payoffs.

A Kiplinger report says that, although the wisdom of doing so is questionable, investors with self-directed IRAs actually could include bitcoin among their investments.

The report defines bitcoin as “a peer-to-peer system where transactions typically take place directly between users. It works without a single or central administrator, unlike the U.S. dollar, which is produced and managed entirely by the U.S. Treasury and the Federal Reserve. [Bitcoin] can be exchanged for services, products and various currencies.”

But the big question is whether you should rely on such a system to boost your retirement savings, since its volatility, legality and risk levels are all enough to make at least conservative investors quake in their boots.

Unsurprisingly, perhaps, young people far more integrated into the cyber world are the ones most likely to bite (or is that byte?)at this electronic currency, but as the gains bitcoin has made in the markets continue to soar and tempt the more timid, some caveats are in order.

First of all, there really isn’t a “bitcoin IRA.” Instead, there are SDIRAs that allow the account owner to purchase any asset permitted by law. Such accounts are capable of holding both conventional assets, such as stocks and bonds, and alternatives, such as gold and bitcoin.

As with many “new” types or classes of investments that have arisen over the years, bitcoin valuations have skyrocketed, the report says.

So has its usage, with more than 100,000 vendors currently accepting bitcoin as a means of payment.

Since a single bitcoin has gone from being valued at 8 cents in 2010 to its current flirt with $10,000 today, it stands to reason that it’s become an alluring investment—but that doesn’t mean it will continue as such without at least a few hiccups along the way—and those can be crippling for those saving for retirement.

Bitcoin is a speculative investment, not a sure thing, despite its so-far-stellar returns. Should the market turn and it tank, so could your retirement account, if you’ve been so hasty as to lard it up with cryptocurrency.

It’s also not necessarily legal, depending on where you live or where you may plan to retire.

While it has been permitted in the U.S. and the IRS doesn’t specifically prohibit it as an investment in an IRA—currently life insurance and collectibles such as stamps, artwork, metals, coins, etc. are prohibited—that doesn’t necessarily mean it will continue that way indefinitely, particularly if the bitcoin market takes a tumble and decimates investors’ holdings.

As the report says, “Some countries, such as Australia and Canada, explicitly permit bitcoins and bitcoin transactions, while others, including Iceland, have strictly prohibited the cryptocurrency. China has allowed the holding and trading of bitcoins but banned the participation of its financial institutions in these activities … [It also] has recently banned bitcoin trading, which forced many bitcoin operators to shut down or move their servers offshore.”