Unless you have been living under a rock for much of the last few years, chances are good that you know about the incredible financial opportunities that exist in the cryptocurrency space.
Types of crypto coins that were once worth a couple of hundred dollars are now worth thousands. Most notably, the two most powerful coins – Bitcoin and Ethereum – have seen incredible gains and have started to assume major roles in the world of international wealth and finance.
Thanks to a recent bull run, both Bitcoin and Ethereum have risen back to the levels of their all-time high prices and are once again at the center of many conversations about investment and wealth.
At the time of writing this, Bitcoin’s price sits at around $60,000 while the price of one Ethereum coin is hovering around $4,000. Perhaps most importantly, it looks like powerful groups, both in the world of finance and government, are starting to adopt these two coins as major stores of wealth. While there are hundreds of coins that people invest in every single day, these two are thought to be the two that could really end up revolutionizing the world of finance.
In fact, there is so much confidence in both Bitcoin and Ethereum that they have become investable assets in personal IRA accounts. But what are the things that someone new to the world of crypto needs to know about investing in either BTC or ETH in their IRA accounts? You’ve come to the right place to find out. Let’s break down everything that you should know about a cryptocurrency IRA together. If you decide to invest in a cryptocurrency IRA, then visit Viva Capital for help.
What is an IRA?
Before we get into investing in ETH or BTC in an IRA, we thought it would be a smart idea to just quickly go over what an IRA account is. Individual Retirement Account, is an investment account that allows individuals to save for retirement with tax-free growth or on a tax-deferred basis. The three most common types of IRAs are:
- Traditional IRA
- Roth IRA
- Rollover IRA
All three options come with different purposes, rules, and goals, but all three offer people a way to invest in companies and – now – cryptocurrencies without having to accrue realized gains taxes. The crucial thing to know about IRAs is that you will not be able to take out the money until you reach the age of 59 and a half years of age. If you absolutely need that money now, you can withdraw money from your IRA but you will face some pretty hefty tax fines.
Okay. So now that you know the very basics regarding IRAs (and trust us there is a whole lot more than you will want to know before you open an IRA of your own), let’s get into the basic details of investing in BTC and ETH in your IRA.
Overall, the most common coins that individuals invest in as part of an IRA are Bitcoin, Ethereum, and Litecoin. Here are the key things to know about investing in Bitcoin in an IRA:
First off, it is important to know that in the eyes of the IRS, Bitcoin is considered and taxed as property. In the past, lots of people got in trouble by not reporting their Bitcoin in their taxes and were hit with heavy fines. Of course, you already have an IRA, chances are good that you are savvy enough with investing and taxes to know that, but we thought it would be important to mention anyway.
Overall, Bitcoin is seen as the primary store of wealth in the crypto space. People often consider it to be gold and its role in the more traditional financial system for this reason. While Bitcoin may not have much utility, its market cap is enormous and at this point, it really is seen as an asset that is too big to fail. As mentioned, BTC is trading at around $60K per coin, some estimates see it is worth as much as a quarter of a million dollars in the relatively near future.
Bitcoin IRA pros:
- Investing in BTC offers a lot of diversity to your IRA investments. In fact, crypto sometimes performs best when traditional markets are down, meaning it can be a great option to offset losses in that sector.
- It is expected to grow in value and diversity going forward.
- It may benefit investors with favorable tax treatment.
Bitcoin IRA cons:
- There are heavy fees involved with investing in Bitcoin and the more valuable coins become the more energy it takes to invest, meaning those fees increase.
- The asset itself is incredibly volatile compared to similarly priced goods. It can be seen as high risk and high reward.
- As previously mentioned, there is still limited global use and is still primarily seen as a store of wealth.
When it comes to investing in Ethereum in your IRA, much of the overall approach to it is similar to that of Bitcoin. One of the primary differences here is that while Bitcoin is seen as the primary store of wealth, Ethereum is seen as the primary building block of the blockchain. It is heavily used to create projects on the blockchain and there are countless “altcoins” that are built on the ETH blockchain.
Ethereum IRA pros:
- Just like BTC IRA, ETH IRAs offer a ton of healthy diversity to your portfolio.
- Unlike BTC, ETH is still relatively affordable, and many predict that it will reach prices close to $10K shortly.
- It is the key building block on the blockchain and countless companies and institutions will likely depend on it in the future.
Ethereum IRA cons:
- There is a lot of volatility in Ethereum, and its value can vary widely from day to day and even from hour to hour.
- The fees are immense and the prices go up when Ethereum is in heavier use across the market.
- Many competitors are actively trying to “flip” ETH in terms of becoming the second most valuable coin on the market.