Holding Cryptocurrency in a Self-Directed IRA

Maybe you noticed: Bitcoin went over $100,000 for the first time recently. For investors who have been keeping their eyes on the market, further eyebrows were raised when BlackRock recommended a 2% allocation as a “reasonable range.” In other words? A new asset class is upon us. And if you want to keep more of these crypto gains for your long-term retirement without a heavy tax burden, you have to turn to IRAs to make that possible. Let’s learn more about how you can use Self-Directed IRAs to hold cryptocurrency and take advantage of this burgeoning asset class.

What You Need to Know About Cryptocurrency

Before we dive into how Self-Directed IRAs can help you invest in cryptocurrency, let’s cover the basics. Cryptocurrency is a digital or virtual currency secured by cryptography. Some people cryptocurrencies them as digital assets, akin to owning gold on the Internet. The security of cryptocurrency, especially with Bitcoin, makes it nearly impossible to counterfeit. And unlike traditional currencies controlled by central banks, cryptocurrencies are decentralized. They operate on blockchain technology—a distributed ledger enforced by a network of computers.

The most well-known cryptocurrency is Bitcoin, as mentioned. But there are thousands of others, including Ethereum, Solana, and Cardano. Each of these has unique features and potential use cases. While Bitcoin often dominates headlines, savvy investors are keeping a close watch on emerging players that could redefine the digital economy.

One of the most compelling aspects of cryptocurrency? It still has the potential for high returns. Early adopters of Bitcoin, for instance, saw their investments skyrocket by thousands of percentage points in just a few years. But here’s the rub: this potential comes with significant risk. You have to be able to handle the volatile swings of cryptocurrency to make it a true long-term investment.

Cryptocurrencies Can Be Very Volatile

Let’s not sugarcoat it: cryptocurrency is not for the faint of heart. Prices can swing wildly. And they can do so within a matter of hours. For example, Bitcoin’s price surged over 300% in 2020, only to lose a lot of its value in the doldrums of 2021/2022. This kind of volatility can be nerve-wracking even for seasoned investors.

Why is crypto so volatile? Several factors come into play. There’s lots of speculative trading, for one. And there’s lots of regulatory uncertainty. There’s also the fact that the market is still relatively young. A single tweet or government announcement can send prices soaring—or plummeting.

That said, volatility isn’t necessarily a bad thing. For investors with a high-risk tolerance and a long-term perspective, it can also mean opportunity. By holding cryptocurrency within a Self-Directed IRA, you can shield these gains from immediate taxation and potentially grow your retirement savings faster.

Using a Self-Directed IRA for Cryptocurrency

So how does a Self-Directed IRA fit into all of this? Unlike traditional IRAs, which limit your investments to stocks, bonds, and mutual funds, a Self-Directed IRA gives you the freedom to explore alternative assets like cryptocurrency. By holding crypto in a Self-Directed IRA, you can benefit from the same tax advantages as traditional retirement accounts, whether that’s deferring taxes on gains in a Traditional IRA or enjoying tax-free growth in a Roth IRA. This means you can buy, sell, or hold cryptocurrency without worrying about immediate capital gains taxes. This frees you to reinvest more of your profits. Plus, as the crypto market evolves, having a tax-advantaged account to ride out the volatility can make a huge difference in your long-term retirement strategy.

Want to learn more about holding alternative assets in your retirement account? Reach out to us here by dialing 866-7500-IRA.