At nearly a decade old, Bitcoin is the longest-running cryptocurrency in a growing field of competitors. This may have something to do with the fact that Bitcoin continues to lead the industry in terms of market capitalization, even as analysts predict that a “Flippening,” in which a competitor such as Ethereum takes over permanently, may be approaching.
Besides that, Bitcoin has surged in popularity in recent months, nearly tripling in price and setting record after record as it climbs to new highs. This is all in spite of the fact that the cryptocurrency industry is still dealing with how it will integrate itself into the broader investment and day-to-day business worlds.
What is a Bitcoin IRA?
A Bitcoin IRA, or a cryptocurrency IRA, is a Self-Directed IRA that holds investments in cryptocurrency rather than cash or investments in precious metals, stocks, or bonds. IRS regulations do not explicitly allow cryptocurrency in an IRA.
However, the Internal Revenue Code does not specify what Self-Directed plans can invest in, only non-allowed investments and transactions. Cryptocurrency brokers and custodians interpret cryptocurrency IRAs to be allowed as capital assets since the IRS doesn’t disallow them.
In a standard Individual Retirement Account (IRA), individuals can keep their investments in traditional securities like stocks, bonds and money market funds.
Bitcoin IRA’s provide an additional option for investing in cryptocurrencies like Bitcoin. Such Bitcoin IRA accounts are covered by custodians who manage the self-directed account and allow for virtual currencies to be among the required alternative investments. However, the custodians may not have any fiduciary responsibility to the investor for such investments. (View Page: Best Cryptocurrency IRA Companies).
Bitcoin IRA Con’s: High Risk, High Cost
While cryptocurrency IRA’s are gaining traction due to the hype around cryptocurrency valuations and the opportunity for a good level of diversification, they come with their own perils: cryptocurrency valuations are hit with wide price swings making it a very risky venture for retirement savings.
Essentially, one should make cryptocurrency investments only after thoughtful consideration of the impact on one’s retirement needs and risk tolerance.
Investors should also note that they cannot buy cryptocurrencies on their own and move them to an IRA account. One needs to utilize the services of a designated firm, like Regal Wallet to purchase as mandated by the necessary compliance rules adding to the cost.
Such third-party involvement also makes an impact during periods of extreme volatility. Due to the 24/7 trading nature of cryptocurrencies, their values may change significantly within a few hours.
Bitcoin IRA Pro’s: The Challenging Financial Climate
One reason to consider an investment in Bitcoin for your retirement is the external financial environment. Hedge funds are an example of how the traditional modes of investing may be collapsing or shifting into new areas.
A number of funds have lost stature in recent years, failing to bring in their legendary returns. The phenomenon may have some investors wondering if it will be possible to make substantial fortunes through traditional investing channels going forward.
Even if you’re looking at a less risky means of planning for retirement, concerns about the viability of older models remain. For these reasons—and because Bitcoin-related ventures are attracting huge investments from sources the world over—many retirement planners are looking at cryptocurrencies as they set aside money for later.
Cryptocurrency is a relatively new form of investment, so here are some things to think about:
- Tax-free growth
- As long as your digital currency is being held in a cryptocurrency IRA, its growth is tax-deferred.
- Transactions are secured through multiple security features and confirmed by a peer-to-peer protocol on a blockchain network.
- Unlike other traditional retirement savings plans, your investments are opened to more than just stocks and mutual funds.
- Limit inflation
- Adaptive scaling of digital currency makes artificially inflating supply impossible.
- Cut out banks
- Big banking institutions can’t touch your digital investments.
What Should You Be Aware of Before Investing in a Bitcoin IRA?
Cryptocurrency is a non-government-backed digital currency that relies entirely on the free market for its value. While some companies have issued their own tokens that represent the digital currency, these also have no backing other than the issuing company’s word, much like casino tokens.
Because digital currency has no insurance or government endorsements such as FDIC or SIPC protection, and no national or international banking rate checks, some in the banking industry deem it to be a fraud. However, many others see cryptocurrency as the currency of the future where anonymous purchases fuel the free market.
There is also a belief that the private companies brokering cryptocurrency transactions can do a better job of securing investments than the current system. The theory is that cryptocurrency can return the market to an equal playing field without governmental interference.
While cryptocurrency was often purchased directly from a cryptocurrency company when it first appeared on the markets, it is no longer common to make this type of transaction due to the complexity of the computing behind the currencies. Now, the most common way to purchase cryptocurrency is through a private exchange.
A cryptocurrency exchange is a virtual stock market where cryptocurrency from several companies is the only investment offered. Matching orders are put together between bidders and sellers by a cryptocurrency broker. Because exchanges are privately held and not regulated, prices can vary significantly between exchanges and brokers.
Some cryptocurrency IRA facilitators run a private peer-to-peer cryptocurrency system and require customers to use that system while others shop between multiple open exchanges.
How to Add Bitcoins to Your IRA
- Choose a facilitiator
- Select a cryptocurrency broker/facilitator.
- Choose a IRA custodian from our List of Best Cryptocurrency Companies
Select an IRA custodian (if your broker/facilitator does not require you use one of their specified custodians) and open a Self-Directed IRA account.
Place an order
Place orders via your broker/facilitator who will then complete transactions and coordinate your IRA wallet deposits with your custodian.
Top Invest in Bitcoin IRA Tips
- Be sure your cryptocurrency company and custodian can work together.
- Research cryptocurrency thoroughly and be sure your portfolio balances the risk associated with a new investment type.
- Get a list of fees and services from each company you are considering before investing.
Concluding Thoughts on Bitcoin IRA’s
Consumers should take time to understand the rewards and risks of cryptocurrency. Speak with companies you consider to see who can best explain the process and the different types of cryptocurrency in a way that is easy to understand.
Because there is no regulation of security rules, fees charged, or transaction guarantees, finding a company with strong security policies and clear policies is very important.
Our three best cryptocurrency IRA companies present solid options for balanced retirement investments with security features along with ease of transaction process.
Do you have any questions on what is the best way to invest in a Bitcoin IRA? Ask below!