Chris Farrell: It's too early to use retirement savings to speculate in cryptocurrency

The value of cryptocurrencies outstanding has reached more than $2 trillion, an astonishing sum considering digital finance has been around for only a decade or so.

Cryptocurrencies will take another step toward the financial mainstream with the mutual fund behemoth Fidelity saying it will soon offer a bitcoin option to the retirement savings plans it administers.

Participants in an employer-sponsored retirement savings plan managed by Fidelity could put up to 20% of their portfolio into bitcoin. However, the decision to add the cryptocurrency option to the plan is up to the employer. Odds are most employers will steer clear of offering bitcoin in their retirement plan at first.

The Labor Department is concerned about cryptocurrencies in retirement plans and employers are conservative with these plans. But some employers will adopt the bitcoin option if employees clamor loud enough. Fidelity will only offer bitcoin, although it could add other cryptocurrencies later.

That said, speculating in bitcoin or other cryptocurrencies in your retirement savings plan is a terrible idea for now and the foreseeable future.

There may come a time when the market is deep enough with a long enough history that financiers will decipher the benefits and risks of owning crypto in an investment portfolio. Then the asset allocation decision can be revisited. But for now, the market is still in its infancy and too risky.

What's more, a stock of well-researched knowledge has been developed over the decades by financiers and economists for how to invest well in a retirement savings plan. Regularly put savings into a well-diversified portfolio composed of mostly broad-based low-fee index funds and high-quality fixed income securities, such as U.S. Treasuries and blue-chip corporates. Dollar cost average, keep fees low, harness the power of compounding and you'll have a nest egg to tap during retirement.

"Investors who avoid high and unnecessary costs and simply sit for an extended period with a collection of large, conservatively financed American businesses will almost certainly do well," writes the legendary investor Warren Buffett.

This isn't a brief against cryptocurrencies. If you want to plunge into the market, go ahead—so long as it's money you can afford to lose.

Don't use tax-sheltered retirement savings. Instead, speculate from your taxable accounts. If your bets go bad, the tax code will lower your financial pain. If you win, you'll still come out ahead after taxes.

Cryptocurrencies are a speculative asset for trading outside retirement savings.

Chris Farrell is senior economics contributor to American Public Media's "Marketplace" and a commentator for Minnesota Public Radio.