fbpx
Connect with us

CryptoSpace

What is a Bitcoin IRA? Things to consider before investing in a Bitcoin IRA

Published

on

Bitcoin IRA

What to expect?

  • What is bitcoin IRA?
  • Why do we need a Bitcoin IRA?
  • How to get started?
  • Advantages of a Bitcoin IRA
  • Disadvantages of Bitcoin IRA
  • Factors to consider
  • Most popular Bitcoin IRAs in the market
  • Frequently asked questions

Note: We are using the term ‘Bitcoin IRA’ to mean cryptocurrency IRA (unless specifically referring to the Bitcoin IRA plan administrator).  

Individual Retirement Account (IRA) is a popular investment vehicle for people to save for their retirement.

The IRAs have been a staple retirement savings method since the 1970s. Now, Bitcoin is looking to rile up this space as well.

Bitcoin IRAs have seen a massive growth in the recent years. In fact, Bitcoin IRAs processed over $400 Million in cryptocurrency transactions since 2016. 

Is this craze really justified?  What’s driving this latent demand?  Let’s examine.

Problem with the existing IRAs

Many individuals pay into a 401(k) in the US or similar plans in other countries which are nothing but a form of an IRA.  

The problem with these popular IRA plans is that they are almost always invested in stock markets (some are invested in bonds but they don’t yield much, barely enough to cover inflation). So when stock market tanks, the retirement savings tank. 

Those who are looking to build a nest egg and retire peacefully are generally disappointed when this happens. Their retirement plans are postponed, sometimes indefinitely.

For instance, in the 2008 market crash, some funds have lost over 41%. For someone looking to retire with a million dollar retirement savings found themselves with $590,000. Of course, we used million dollars to simplify math since in reality people don’t have that kind of money in retirement plans. Average 401(k) balances at the time of retirement is about $200,000.

So far we did not have many alternatives in regards to where to be invested through an IRA. However, Bitcoin as a new asset class is turning heads in the IRA space.   

What is a Bitcoin IRA?

Bitcoin IRAs offer the unique opportunity for investors to invest in bitcoin and a handful of cryptocurrencies.

For example, one of the most popular players in the space, Bitcoin IRA, offers investors the ability to invest in Bitcoin along with Ethereum, Ripple, Litecoin, Bitcoin Cash, Ethereum Classic, Stellar Lumens, ZCash.  

Bitcoin IRAs are self-directed IRAs

At this time, all Bitcoin IRAs are self-directed IRAs, that means, you manage your digital assets in the account including making buying and selling decisions.  

Unlike traditional IRAs where the investors have the option to either self-direct or seek help from brokerages and financiers, Bitcoin IRAs do not come with those options.

For this reason, it is important that individuals are aware of the cryptocurrencies that they are looking to invest in.  They will also have to keep an eye on the market movements in case they plan to trade within the plan.

Why do we need a Bitcoin IRA?

Do you believe in the long-term potential of Cryptocurrencies?

Do you hope to HODL your bitcoin and cryptos well into your retirement age (59.5)?

Do you also want to take advantage of rallies that happen once in a while?

Do you hate paying taxes every time you make a profit on your crypto sale?

If you answered YES to ALL the above questions, then Bitcoin IRA may be for you. 

When you invest into bitcoin and cryptocurrencies through a Crypto IRA, you have the option to buy low and sell high as many times as you want.  The profits simply accumulate in your account tax free.  You cannot take the money out of the plan until you reach 59.5 years of age.  

If you bought and sold cryptocurrencies outside of an IRA, you are generally subject to taxes in the same year, however, transactions within an IRA are not immediately subject to taxes.

How does the Bitcoin IRA work?  How do I get started with Bitcoin IRA?

To get started you will have to:

  • Open an account with a Bitcoin IRA plan administrator: First step is to create an account with your favorite crypto IRA plan administrator like Bitcoin IRA or BitIRA.
  • Complete the KYC: Prove your identity by finishing the Know Your Customer (KYC) process which usually involves providing a copy of your government issued ID. 
  • Fund your accounts: You can connect your bank to fund your crypto IRA account to start the investment.
  • Rollovers, if any: You will have the option to rollover your traditional IRAs into a Bitcoin IRAs, if you choose to do so. Your plan administrator will walk you through the steps involved.
  • Start trading 24/7: Once your account is funded, you can buy and sell any cryptocurrencies available within the IRA platform. Unlike traditional markets, you can trade cryptos 24/7. 

That’s it.  You are all set with your Bitcoin IRA account. You can self-manage the trading within your account.

Advantages of Bitcoin IRA

Tax deduction on investment
Most IRA contributions qualify for a tax deduction within the IRS approved limits.  This means, you are not only able to keep your profits tax-free until distribution, you can also take a deduction for the contributions made into the Bitcoin IRA.

Trade and keep profits tax free
Any profits you make by selling the cryptocurrencies within a Bitcoin IRA remain tax free as long as you keep the funds within the plan.  If you take the money out of your IRA after reaching your retirement age (59.5) – you can take advantage of tax favorable treatment.

Grow your investment without the worry of taxes
You have the opportunity to take deduction for the contributions made into the Bitcoin IRA as well keep your profits from trades shielded from taxes, this helps you grow your portfolio quickly. 

Favorable taxation on distribution
Bitcoin IRA distributions, as per rules, are subject to the same favorable tax rules as traditional IRAs.

Disadvantages of Bitcoin IRA

High risk and high reward
“[Bitcoin] is either zero or it’s millions,” said Chamath Palihapitiya, and that exactly is what you need to be aware of.  Yes, there is a chance that your IRA might be worth a lot or it could be worth nothing.

Not for newbies
As all Bitcoin IRAs at this time are self-directed, investors need to have at least basic knowledge  of cryptocurrency options available within the Bitcoin IRA. Most plan administrators have only listed established cryptocurrencies which should make it a bit better but it doesn’t relieve the need to study them before investing.

Limited crypto choices
If you trade on an exchange, you may have 100s or even 1000s of options to pick and choose various cryptocurrencies to trade. In a Bitcoin IRA your options are limited to whatever is available in the plan. 

Lock-in
You cannot access the funds before you reach retirement age (59.5).  If you withdraw the funds before the eligible age, you may be subjected to penalties and unfavorable tax rates.

Hard forks
Some plan administrators may not be able to allocate the hard forks.  Speak to your plan administrator before investing.

Staking rewards
Bitcoin IRA plan administrators may not be able to allocate your staking rewards from the assets you hold in your account. You have to clarify this feature before investing.

Factors to consider

Fees
Before you invest into an Bitcoin IRA, make sure you understand the fee structure. Do they have annual maintenance fees? Do they charge for every transaction, transfer, etc.,?  Annual plan fees are important as well.

Distribution restrictions
Does your plan let you freely rollover your funds from a traditional IRA into a Bitcoin IRA and then from your Bitcoin IRA into your traditional IRA?

Penalties for early distribution
Bitcoin IRA is subjected to similar regulations as traditional IRA in that you cannot take your funds out until you reach 59.5 years of age.  If you take distribution before that – you may be subject to 10% early distribution penalty and unfavorable higher tax rates. Talk to your tax preparer.

Difference in the price of the coin
Are the rates updated and are they competitive on par with the rates available on popular exchanges? 

How is the volume?
For you to sell and sell at a profit, you need to have enough volume on the interface on the platform, make sure you get some understanding of this aspect.

Most popular Bitcoin IRAs in the market

There are quite a few bitcoin IRA plan administrators out there. However, for the purpose of this article, we are looking at two: Bitcoin IRA and BitIRA.

Bitcoin IRA

Plan AdministratorBitcoin IRABitIRA
Cryptocurrencies available (June 2020)Bitcoin
Ethereum
Ripple
Litecoin
Bitcoin Cash
Ethereum Classic
Stellar Lumens
ZCash
Gold
Bitcoin
Bitcoin Cash
Ethereum
Ethereum Classic
Ripple
Litecoin
Zcash
Stellar Lumens
CustodianKingdom Trust, BitGo®, and GenesisIts own propriertory storage and Preferred Trust Company
Insurance$1 Million dollar Consumer Protection Policy (and $100 Million overall Custody Insurance)$1 million Consumer Protection policy. Data breach insurance with a $1 million Cybersecurity Policy from Hiscox.
SecurityID and Voice RecognitionEnd to end insurance, cold wallets, multi-sig authentication, trailblazers in security. Additionally, BitIRA voluntarily signed up as a Money Services Business with the U.S. Department of Treasury
Minimum Amount$3,000$20,000

Frequently asked questions

Are Bitcoin IRAs legal?
Yes. IRS has classified cryptocurrencies and digital assets as property and are now deemed to be qualified for the IRA investment. IRS did not explicitly prohibit the Bitcoin and cryptocurrencies from the IRA.

Who can invest in a Bitcoin IRA?
Everyone who is eligible to participate in a traditional IRA can invest in Bitcoin IRA. Some States may specifically prohibit individuals from participating in certain plans, check with the program administrator about the rules that apply to your specific jurisdiction.

Can I rollover my traditional IRA into a Bitcoin IRA?
From a US perspective, you should be able to rollover any type of IRA including Traditional, Roth, SEP or SIMPLE, however, an employer sponsored 401(k) may have restrictions on the rollovers.  Check with the plan administrator.

Will I pay any penalties if I rollover my IRA to a Bitcoin IRA?
Simple answer is, as long as you abide by the rules, there should not be any penalties. 

Will I receive my hard forks?
Most Bitcoin IRAs may try to allocate your hard forks but they do not guarantee it.  You have to confirm this with our plan administrator.

Can you buy bitcoin with the Roth IRA?
If you meet the income eligibility condition, you may be able to contribute into a Bitcoin Roth IRA. It may even be beneficial if you expect bitcoin and crypto to do well in the future as Roth IRA distributions (qualified) are usually tax free. Talk to your financial advisor and plan administrator about the availability, advantages and limitations of Bitcoin Roth IRA.

Thank you for reading and sharing this article.

Don’t forget to subscribe to receive ONE email per week with critical blockchain and crypto updates and occasional freebies. Check all the amazing stuff our subscribers get for FREE.

IMPORTANT DISCLAIMER

Everything in this article is an opinion, not an advice of any kind. This material has been prepared for general informational purposes only and it is not intended to be relied upon as accounting, tax, investment, legal or other professional advice. Please consult with a professional for specific advice.

We do not endorse or guarantee the accuracy of the information and claims made.

All product and company names are trademarks™ or registered® trademarks of their respective holders. Use of them does not imply any affiliation with or endorsement by them.

Get ‘Week in Crypto’ news updates in ONE email.
We never
spam your inbox and we only send one email per week
with updates, news, eBooks, tax updates, and more!
Get
knowledge, not spam!  Subscribe here.

best Crypto Tax Software

Continue Reading

CryptoSpace

All Roads Lead to $100K Bitcoin: Various Perspectives that Support $100K BTC

Published

on

Bitcoin to 100K

Bitcoin to 100K

There are a lot of theories in the crypto space that argue that Bitcoin will reach $100,000 before the next halving.  Some even argue that we could reach that price point before the end of 2021.

Here we have compiled a few perspectives that support a higher price point for Bitcoin.

IF we missed any, please let us know and we will be glad to add it for others to read.

Bitcoin’s ability to reward savers

If you saved $100,000 throughout 2017, today its value would have been $94,000, a total loss of 6% due to inflation. That is without considering the fees and hidden charges that institutes charge.

Even if you invested in the S&P 500 for 12 months at $8333 each month throughout 2017, your portfolio value today would have been $110,000.

If you saved $100,000 in Bitcoin throughout the 2017 (prices ranged from $920 through $14,000 during Jan 2017 through December 2017).  For the purposes of this comparison we are using the last week prices from each month as available on Coinmarketcap historical snapshots.

$100,000 invested in equal amounts throughout 2017 would look something like this.

Bitcoin to 100K

Since 2017, Bitcoin price has crashed and rebounded.  At the lowest point of the crash of $3000 per bitcoin, your portfolio value would have been $144,000.

In today’s average price of $16000 per bitcoin, your $100,000 savings would have been worth $770,000.

Due to its increasing demand and reducing supply, Bitcoin is expected to reach $100,000 in the next 4 years. Some models show that bitcoin will be worth $1 Million by 2030.

Only time will tell us whether bitcoin reaches these prices or not, but point being, no other asset of any class has crazy growth predictions like Bitcoin has.

Stock-to-flow ratio

According to Plan B, Gold had the highest stock-to-flow (SF) ratio of 62.  That is, it will take 62 years to produce the gold that is currently in the market.  In other words, you cannot willy-nilly inflate the supply in a year or two due to how scarce gold is and how difficult it is to find and mine it.

Current SF for Bitcoin is 25, however, by the end of 2020 or 2021, this could jump to 50.  By the next halving in 2024, Bitcoin could surpass the SF of gold.

According to Plan B, “The predicted market value for bitcoin after May 2020 halving is $1trn, which translates in a bitcoin price of $55,000. That is quite spectacular. I guess time will tell and we will probably know one or two years after the halving, in 2020 or 2021. A great out of sample test of this hypothesis and model.”

However, following the trajectory of Plan B’s SF analysis, Bitcoin could easily reach $1 Million dollars by 2030, according to some commenters.

Stimulus and unlimited printing of fiat

COVID has exposed another flaw in the fiat system.  It is that governments can print as much money as they wish whenever they wish to do so.

Whenever governments resort to simply print money without having a basis in asset value or growth in GDP, it erodes the value of the fiat in circulation.

This is what happened to Argentina, Venezuela, Zimbabwe and more.  

The US dollar has lost over 99.97% value since 1900.  For instance, whatever you could buy with $1 in 1900 will need $31 today.

COVID has added salt to the wound for fiat.  It exposed the blatant fact that governments can and will print money to their whim without regard to the inflation and impact on savers.

This increased supply in fiat helps stock market and market liquidity which in itself helps people who are invested in the stock market and other vehicles which is generally the wealthier part of the society.

Other factors strengthening the crazy Bitcoin price predictions

  • Institutional FOMO, for instance, Square, PayPal, Grayscale, etc., entering the market
  • Easier onboarding of new retail investors
  • Greater technologies and DApps being built on Bitcoin 
  • Great DeFi services to lend and borrow money
  • Globally accepted single denomination that does not need to be converted in the future (with enough places accepting bitcoin)

What other factors do you think will contribute to Bitcoin’s shooting past the $100,000 barrier?

Let the FOMO begin…

Thank you for reading and sharing this article. We appreciate you.

Stay safe and healthy!

Top 5 Cryptocurrencies 2020

IMPORTANT DISCLAIMER

Everything in this article is an opinion, not an advice of any kind. This material has been prepared for general informational purposes only and it is not intended to be relied upon as accounting, tax, investment, legal or other professional advice. Please consult with a professional for specific advice.

We do not endorse or guarantee the accuracy of the information and claims made.

All product and company names are trademarks™ or registered® trademarks of their respective holders. Use of them does not imply any affiliation with or endorsement by them.

 

Continue Reading

CryptoSpace

Crypto Roundup: All Your YouTube Influencers in One Place

Published

on

Crypto Roundup

Visit our Crypto Roundup section daily for a dose of all your favorite Crypto YouTube influencers in one place.    

Worried about missing updates from your favorite YouTube crypto influencers?  

Welcome to the Crypto Roundup.  

On this page, we will post a quick summary of the videos from some of the most popular YouTube crypto influencers.

Ivan on Tech  Altcoin Daily

Crypto Zombie Box Mining

Ellio Trades Lark Davis

Data Dash Bitboy Crypto

MMCrypto Chico Crypto

Altcoin Daily

Video title: Bitcoin Will Be OVER $20,000 By Christmas 2020! BIGGEST WEALTH SHIFT OF OUR LIFETIME! Cryptocurrency

Date: 19-Nov-20

  • World’s biggest wealth shift of our lifetime is happening right now and no mainstream media is talking about it, except CNBC.

  • Preston Pysh predicted on August 26th that: “Bitcoin should be reaching its all time high by Christmas.”

  • If you are looking to buy a dip, there may not be one.
  • Ricardo Salinas Pliego, a mexican billionaire, has just revealed that 10% of his liquid assets are into bitcoin.

Lark Davis

Video Title: STOCKS HIT NEW HIGHS! WILL COVID VACCINES LEAD TO MEGA PUMP IN 2021? [Are You Ready?]

Date: 19-Nov-2020

  • Stock markets and bitcoin pumps higher on the news of the second successful covid vaccine.
  • There could be more chances for the new stimulus. Means more inflation, more debt and simultaneously pumps stocks, gold and bitcoin.

Crypto Zombie

Video Title: BITCOIN $18.5k TOP!!?! DON’T BE FOOLED!! HODL FOMO BEGINS!!! $TRILLIONS FLOOD!!

Date: 18-Nov-2020

  • Overall sentiment of Bitcoin has changed drastically from ICO craze in 2017 to a time where people are FOMOing to own more bitcoin.

Ivan on tech 

Video Title: BIG WARNING TO ALL HODLERS!!!!!!!!! DO NOT GET REKT!!! BITCOIN $18,500 REJECTED – NOW WHAT?

Date: 18-Nov-2020

  • Ivan expects bitcoin to shoot past $20K resistance before end of this year, giving it 85% probability

Chico Crypto

Video Title: World’s Most Powerful Turn BULLISH on BITCOIN

Date: 19-Nov-2020

  • All those who hold big bags of Bitcoin will come out of the shadows to talk up the Bitcoin rally, a $20K bitcoin could be on the cards before the end of this year
  • Ethereum mining could act as a big catalyst for Ethereum’s price
  • Big companies like google could play a bigger role in mass adoption of crypto

Let the FOMO begin…

Thank you for reading and sharing this article. We appreciate you.

Stay safe and healthy!

Top 5 Cryptocurrencies 2020

IMPORTANT DISCLAIMER

Everything in this article is an opinion, not an advice of any kind. This material has been prepared for general informational purposes only and it is not intended to be relied upon as accounting, tax, investment, legal or other professional advice. Please consult with a professional for specific advice.

We do not endorse or guarantee the accuracy of the information and claims made.

All product and company names are trademarks™ or registered® trademarks of their respective holders. Use of them does not imply any affiliation with or endorsement by them.

Continue Reading

CryptoSpace

Lessons from the Veteran HODLERS to the Newbies!

Published

on

Lessons in Crypto

For all those who entered the crypto market after the 2017 bull run – here are few lessons from the HODLERS from the last bull run(s).

This is our attempt at making all you newbies aware of the mistakes veteran cryptoers did.

Let’s get started…

Don’t FOMO in to all the hype

FomoIt’s hard not to FOMO in crypto.  The trick is to make sure you don’t lose your shirt in crazy bets.  Always limit your bets to what you are comfortable losing.

The common ways you can become victim of FOMO are:

  • Following your favorite YouTuber without actually doing your own research on the project.
  • Investing into projects at the top.
  • Believing in promises of 100x or 1000x without any substance behind those claims.

HODLing far too long

Remember why you are into crypto – to make the money.

Never fall in love with your crypto, and HODL the tokens even when they are 10x and more.

Have a strategy to take your capital out before you become a HODLer.  

If you believe the project really has what it takes to go beyond 100x and more, just sell in instalments so as to not miss the ride.

One of the best ways to HODL is to take your capital in full and profit in tranches.

This rekt story will give you a right perspective of what it looks like, it’s one of many:

Don’t put all your eggs in one basket

Never go all in on one project. No matter how strong the project may look, even the projects with strong fundamentals don’t do well sometimes. 

And, you will be kicking yourself watching other projects go up and your portfolio just doesn’t seem to make a move.

And don’t over do it and have a portfolio with over 100 projects either. It is very difficult not to have invested in more than 15 projects but anything less than 20 is a good way to go, in our opinion. 

Put aside the share of Profits for Taxes.

One way you can get a good night’s sleep is by paying taxes. 

Always keep a habit of putting aside a % of your profits in USDT or other stable coins, as a reserve to take advantage of market volatility and also to meet your tax obligations. 

Exchanges are more evil during bull run

Foreign ExchangesDon’t trust exchanges. Yes we already know that, but they play more games during bullrun, some intentional and some technical. 

Many exchanges tend to go under maintenance when the prices shoot up too high too soon (Coinbase?), and you can’t sell. 

And the shady exchanges scam out before you know.

Regulators seem interested when the market cap of these projects goes through the roof, which then adds FUD around the project crashing the prices.  

Exchange may freeze funds pending investigations when such issues arise.

Take for example OKEx. Users are unable to withdraw their assets from the exchange for almost a month now, not certain if they ever will, and all that started with the legal dispute.

Never fall for Arbitrage gains

Arbitrage is when you buy in one exchange at a lower rate and sell on the other for a higher rate to take some profits. 

Some shady exchanges show a lot higher prices than the other genuine exchanges and when you deposit your assets to sell at those prices there won’t be actual volume to execute the trade. You may be stuck with either a high fee for withdrawal or other funky rules to take your own money out. 

Remember, there is no free Giveaway

Free CryptoScammers rise with the rising market.  

When the crypto market buzzes with all time highs – scammers cash in big time on newbies.

The most lucrative scam in crypto is ‘Free Giveaway’. Whether it be through YouYube ads or discussion groups and wherever they can get your attention.  Read this article on various sophisticated scams that are being deployed.

We hope these lessons help you through your trades and crypto life.  Stay safe and always DYOR.

Thank you for reading and sharing this article. We appreciate you.

Stay safe and healthy!

Top 5 Cryptocurrencies 2020

IMPORTANT DISCLAIMER

Everything in this article is an opinion, not an advice of any kind. This material has been prepared for general informational purposes only and it is not intended to be relied upon as accounting, tax, investment, legal or other professional advice. Please consult with a professional for specific advice.

We do not endorse or guarantee the accuracy of the information and claims made.

All product and company names are trademarks™ or registered® trademarks of their respective holders. Use of them does not imply any affiliation with or endorsement by them.

 

Continue Reading

Trending