Some investors choose Bitcoin IRA over Social Security

    28 Jul 2021

    Launched in May of 2016, BitcoinIRA is offering investors the tax advantage of an IRA in return for a high-risk but high-reward alternative asset class. The company already has above 100,000 account holders, including clients starting the age of 18.

    BitcoinIRA launched in May of 2016, offering investors the advantage of a tax-free, self-directed Individual Retirement Account (or IRA), plus the return of high-risk, high-reward crypto assets. It’s similar to other IRAs, except that instead of being funded by gold, bonds, or cash, it’s backed by Bitcoin.

    For the moment, the company has above 100,000 individual account holders, including clients as young as 18. But CEO Chris Kline claims that “it’s not a young kids’ game anymore,” as 75% of account holders are over 45.

    BitcoinIRA is dealing not only with Bitcoin, accepting a long list of cryptocurrencies, including Ethereum and Litecoin.

    Campbell Harvey of Duke University thinks diversification is the right choice: “To have a portfolio that has exposure… to a single crypto like Bitcoin, that doesn’t make any sense, because while Bitcoin is the most important one right now, its share of the overall capitalization of cryptos has decreased through time. There are so many other tokens out there,” he said.

    In 2017, BitcoinIRA served $6 million in transactions for 700 account holders. In July 2021, it exceeded $1.5 billion in all-time transactions.

    There are still far fewer players in the crypto retirement sector and are plenty of options in the market now.

    In a recent survey of financial advisors, we can see a significant shift to cryptocurrencies. 14% of the more than 500 advisors in the report said they now use or recommend cryptocurrency to clients, against less than 1% in the last two years.

    For instance, IRA custodian Kingdom Trust offers users the option to diversify into 20 different cryptocurrencies. Ryan Radloff, Kingdom Trust CEO, told CNBC that $2 billion of the $17 billion that it holds for clients is now in cryptocurrency. That’s up from $350 million in 2020.

    “The amount of people interested in including bitcoin in their retirement savings…is increasing exponentially,” he noted. “People don’t want zombie retirement accounts that only allow you to invest in three target-date funds. They want to have more choice in what they do with their hard-earned money, and they want access to hard-assets that will increase in value over a long time horizon.”

    But what about Bitcoin volatility? The world’s most popular cryptocurrency has fallen about twice its April price.

    “We don’t see that volatility in, for example, the stock market,” pointed Harvey. “It’s naive to think that bitcoin is just going to keep on going up.”

    Aside from the volatility risks, the Securities and Exchange Commission (SEC) also warned of the risk of fraud in self-directed IRAs dealing in crypto.

    But Kline remains optimistic. He says it’s the tax break that ultimately makes BitcoinIRA a real hit for those looking to deal in cryptos.

    If a taxpayer at an average income level were to sell his bitcoin today, he would pay no tax for the crypto held in his BitcoinIRA. If it were in a Coinbase account, this same person would face a 22% short-term capital gains tax or 15% for a long-term holding.

    “Pretty clear quantitative reasoning to put an asset like Bitcoin in an IRA setting,” said Kline.


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