The concept of investing in Bitcoin as part of a retirement fund is trendy right now. Especially because Bitcoin’s price seems to achieve higher lows every single year. It’s a fundamentally sound technology that offers individuals the opportunity to exchange value on a decentralized network that is controlled by a community of users rather than a central authority or government.
While investing in digital currencies as part of a retirement portfolio might still seem like a foreign concept to most people, there are five different IRA providers that allow investors do make adding Bitcoin or other cryptocurrencies to a nest egg not only feasible, but easy.
Bitcoin is certainly the most popular digital currency retirement investment right now. It makes sense given that the currency is worth over $150 billion and that it still stands as the most valuable crypto in the world almost exactly 11 years after its invention.
Just because it’s the most popular, doesn’t mean that there aren’t any alternatives. There are many other alternative coins (aka altcoins) available for investment within an IRA that possess great potential in terms of the underlying coding structures and technologies they use and the overarching missions they hope to achieve.
In this review, we will scour through all of them and allow interested investors to get a jumpstart on some detailed research that might make choosing the right IRA provider a little bit easier. We’ll also go through a brief review of our IRA providers.
Remember, no matter which digital currencies investors choose to commit to in an IRA, the industry is still in its infancy relative to the traditional financial system or other more traditional asset classes like real estate, gold, stocks or bonds. Starting small and building up one’s portfolio over time is strongly recommended. People should never invest more in cryptocurrencies than they’re willing to lose. Consulting friends, family members, and financial advisors it is recommended. Completing a self-assessment or risk tolerance survey can also help develop a clear picture of the investment strategy that’s right for each individual.
A blockchain is really a decentralized database. If the blockchain is public, anyone can look at the information. If people need permission to view the data, it means the blockchain is likely owned by a private company. The data stored on the blockchain can be anything really. Governments can use it for passport or health insurance information. An art curator can store certificates of authenticity on it, and cryptocurrencies can store ledgers and transaction information on it.
That’s what they do. A project like Ripple, which is owned by a company, only lets company staff run and/or manipulate the blockchain. A truly public currency like Bitcoin, which isn’t owned by anyone, allows users to secure and participate in the Bitcoin economy without any permission required. The fact it’s secured by users is why bitcoin’s can’t be counterfeited. It’s also why the network itself can’t be hacked.
So while Bitcoin’s invention ignited a revolution and an entire new asset class, the adoption of the blockchain is happening at a much faster pace, because it can be implemented wherever there is data floating around.
As we’ve touched on in the introduction, an altcoin is simply any digital currency not named Bitcoin. Don’t confuse this with other currencies that have Bitcoin in their name. Bitcoin Cash, Bitcoin SV, Bitcoin Gold, Bitcoin Diamond and Bitcoin Dark are all considered altcoins even though they start with the word Bitcoin.
Since that’s out of the way, let’s look at altcoins from a technical perspective. What makes them better or different from Bitcoin? There are several ways to answer that question so we’ll explore all of them. First let’s go over the fundamentals of Bitcoin. That way we can put all other altcoins into perspective.
One of the ways in which Bitcoin differs from altcoins is that it really doesn’t serve any other use cases beyond being a peer-to-peer network for exchanging monetary value. Other cryptocurrencies and blockchain projects aimed to serve a specific audience or purpose beyond that.
Bitcoin also offers a limited supply of 21 million coins. No more than that will ever be available as long as the Bitcoin network exists. This almost guarantees that bitcoins will grow in value over time. Many altcoin projects offer billions of coins on the open market in support of projects that may or may not take off in the future, either because their use case isn’t readily evident to the average investor, or because the use case is evident but it just doesn’t have any value society. Such is the inherent risk altcoin investors are taking.
Fortunately when it comes to investing in an IRA, IRA providers aren’t interested in taking gambles on altcoins unless they have a proven market value in the billions of dollars and the trading volume of such assets is high. Remember that IRA providers just like individual investors are in the business to make money. If a particular altcoin doesn’t have trading volume and it isn’t traded on major exchanges, odds are that IRA providers won’t sell it to investors as part of a retirement plan. That only makes good business sense.
One great example is Ethereum. Ethereum is the reason smart contracts exist. Smart contracts allow two parties to make a deal and exchange value when the conditions of that deal have been met without the need for a third party such as a lawyer, escrow service or agent to be part of the deal and taking a cut. While this innovation can certainly be programmed into other digital currency projects through upgrades and changes in coding structure (Bitcoin included), Ethereum’s goal is and ultimately to serve as just a value exchange. Its blockchain is intended to allow app developers to build decentralized applications and deliver them to the masses.
Ripple is another popular and valuable cryptocurrency project looking to serve central banks. Its technical mechanisms are slightly different than Bitcoin’s. The supply of coins available is vastly greater than Bitcoin’s, and the target audience for the Ripple network is not individuals, but rather central banks. Ripple wants to make it cheaper and faster for central banks to send money to one another. The average person can still use it and own its XRP token, but fundamentally speaking Ripple wants to help major financial institutions continue to centralize wealth and gain greater efficiency, whereas bitcoin aims to liberate the masses from the traditional financial system altogether.
It’s for that reason that many digital currency purists speak out against Ripple and similar projects. They use the same technology as Bitcoin, but their fundamental goals actually work in direct opposition to Bitcoin’s mission.
Investors who don’t care about the political or social angles associated with different blockchain projects and just want to make money can rest assured that there is nothing illegal or wrong about choosing any altcoins over Bitcoin for an IRA investment. That said, it’s probably not a good idea to brag about investing in Ripple online. Backlash may end up being the order of the day.
The above section tells investors more about Bitcoin and two of the top competing altcoins on the market, Ethereum and Ripple. Those interested in altcoins as IRA investments should work with Regal Assets because the company offers more altcoins than any other competitor. Including the three mentioned above. Let’s review some of the other projects available for investment at Regal Assets.
All of the altcoins that still have the word Bitcoin in their name are positions that way because computer programmers took what they liked of the original Bitcoin coding structure and added their own spin. That’s true for any alternative coin. Bitcoin Cash’s coding structure is such that it allows for transactions to be confirmed on the blockchain faster than would be the case on the original Bitcoin and the transaction cost is cheaper. While many supporters thought Bitcoin Cash would eventually become the most valuable cryptocurrency in the world that clearly hasn’t happened.
Bitcoin Gold aims to eliminate the traditional use of ASIIC chips for mining. One of the big problems with Bitcoin and other early cryptocurrencies is that their mining processes consume a lot of power. After some time passes it becomes more difficult for the average miner to compete with large mining companies who can scale a lot more of their efforts because they have more money. This race to scale is ultimately bad for decentralized currencies because it puts power and influence in the hands of the very few. Bitcoin Gold aims to let anybody with access to graphics cards mine Bitcoin Gold coins. It’s seen as a more efficient way of mining but the project itself is still not nearly as valuable as Bitcoin.
Bitcoin SV took it’s codebase from Bitcoin Cash. In short, the project promises to facilitate a higher number of transactions and increase the likelihood of mass scalability by increasing the size of blocks. Blocks are essentially bits of data that can be fed through a pipeline in one chunk. The bigger the chunk, the more data it can accommodate. Bitcoin SV is actually the brainchild of the popular crypto website CoinGeek. There’s a lot of controversy surrounding the project and whether it actually subscribes to the holistic values of decentralization.
We’ve already touched on Ethereum. Ethereum Classic is the original version of the project, hence the name Classic. In the early days of altcoins, Ethereum was the first platform that allowed app developers to raise funds through initial coin offerings, which empower developers to take greater control of fundraising without having to go to venture capitalists. One of the first projects to raise money on the Ethereum network was the DAO. Unfortunately, a hacker exposed faulty coding in Ethereum’s network and stole $50 million out of $150 million raised. The theft motivated users to create a new version of Ethereum. Today, people still use both blockchains, but Ethereum has more value in terms of market capitalization.
Litecoin is one of the few alternate versions of the Bitcoin coding structure that doesn’t actually bear the name of Bitcoin. Litecoin’s coding is more basic, that’s why it’s called Lite. It differentiated itself with faster transaction times and lower costs before direct competitors like Bitcoin Cash existed. The project was invented by former Google engineer Charlie Lee, who sold all of his Litecoins in the last two years. Today, he’s one of the richest people in cryptocurrency.
Stellar Lumens is an indirect competitor of Ripple (mentioned above). The project competes with Ripple in the sense that it serves to replace the traditional methods used by financial institutions to transfer large amounts of money, but not exactly in the same way. Furthermore, while the project is supported by a nonprofit foundation, just like many other major cryptocurrency projects, it’s not owned by a private company like Ripple is.
Stellar’s goal is to allow the individual to transfer money without using international remittance services like Western Union or Money Gram, which typically charge consumers up to 10% interest just to complete a transaction. Stellar started out as an altcoin project while behind the masses in terms of market capitalization. The progress the project has made over the last couple of years has catapulted Stellar to top 10 status. Today, the project is worth more than $1.2 billion.
ZCash is a token dedicated to maintaining the privacy of users. Its value proposition is based on the concept of zero knowledge proof. Essentially, it runs on a protocol known as ZSnarks, and the whole idea is that all participants in a transaction can prove that exchanges of value are real and genuine without every party involved in the transaction having to know any of the details of the sender or all of the details of everyone involved in the transaction.
This level of privacy may not be necessary for a friend to transfer value to someone they trust, but it has real-world value where people are doing business with a third party while wishing to maintain either complete privacy or at least enough privacy to make them feel comfortable with continuing to complete the transaction. A real-world example could be something like qualifying for credit at a bank. A consumer can use the ZSnarks protocol to reveal that they qualify for the credit without necessarily revealing their exact income.
An Altcoins IRA is kind of like a more traditional Gold IRA. Both are self-directed accounts that let people include alternative assets as part of their investment mix. Traditional IRAs and 401(k)s don’t let people go beyond traditional stocks, bonds and certificates.
Doing this involves a lot of administrative work in negotiating on the part of digital currency IRA providers. They don’t do it alone. They use custodians that allow alternative investments. Regal Assets, Bitcoin IRA, BitIRA and Noble Bitcoin are all examples of cryptocurrency IRA providers that use custodians. In order to include investments outside of digital currencies, these providers also have to work with wholesalers and depositories that can give the investor the best possible price and the easiest possible access to different assets.
We’ll go deeper into each of the IRA providers above and explain how they allow investors to hold Altcoins tokens in their accounts while also having access to a variety of other alternative assets.
Bitcoin is indeed the most popular cryptocurrency in the world, but it’s far from the only game in town. There are over 2,500 coins on the market right now. That’s a lot to choose from. Fortunately, the majority of projects on the market either don’t have much of a trading volume or they don’t have much of it online community. That’s actually a big reason IRA providers are only sticking to some of the larger altcoin projects out there.
Investing in Cryptocurrency is risky even if you’re investing in just the top coins. IRA providers won’t allow consumers to risk their money on projects that are brand-new to the market.
But here’s why you should invest in altcoins for retirement. While most of them haven’t proven their use cases, the ones that IRA providers offer to investors have at least to some degree. Some aim to make it easier to develop new apps and technologies like Ethereum. Others work with large financial transactions that aim to either eliminate centralized big banks or at least make business more efficient for them, which should lower costs for consumers, like Ripple or Stellar.
Still, the above projects represent just a snapshot of the innovative approaches these projects have to decentralizing wealth and empowering the individual.
Choosing Altcoins over Bitcoin really comes down to personal preference. For those that understand the technical differences between different cryptocurrencies, they might choose to invest in Altcoins because of its sound fundamentals (aka the fact that it has a smart contract platform, and has proven itself as the world’s second most valuable cryptocurrency). The reality is that Bitcoin is likely still the most popular choice because it’s valued at over $150 billion and despite the fact there are over 2,500 cryptocurrencies on the market today, Bitcoin still reigns supreme above the mall when it comes to market capitalization.
Generally speaking there’s no need to pick between the two. Investors can have their cake and eat it too. All of the major Bitcoin IRA providers doing business today offer at least a handful of other cryptocurrencies as options, including Altcoins.
As we certainly recommend starting small when adding cryptocurrencies to a retirement portfolio, perhaps allocating funds dedicated to digital assets should be divided evenly between the cryptocurrencies one might be interested in.
Adding altcoins to your IRA or 401(k) follows exactly the same process as investing in Bitcoin does. Prospective customers are encouraged to do their research on the different IRA providers available. Once that step is complete it’s time to register with the chosen provider and handover the identification necessary for completing KYC requirements. All investment providers are obligated to complete a risk tolerance survey with customers, so that will give you an idea of the kinds of alternative assets you should be considering as investments.
As long as investing in altcoins meets your risk profile, the IRA provider will facilitate the transaction through the right channels. This means dealing with custodians and wholesalers that secure assets and provide the best possible price on a given asset. It may also mean dealing with a depository in the case of dealing with real physical assets like gold. Remember that digital assets should only represent part of an investment portfolio and not the entire thing.
The main differences between a Roth IRA and Traditional IRA have to do with tax implications. It doesn’t really matter if the investor chooses to invest in Bitcoin, altcoins or other assets like gold or traditional financial instruments. The ability to hold alternative assets in these accounts has more to do with the custodians, wholesalers and depositories associated with the IRA provider than it does the investor’s preferences.
Nevertheless, let’s go over some of the differences between the two. A Roth account allows investors to benefit from tax-free growth and tax-free qualified withdrawals. As a trade-off, the investor pays taxes on their investment at the time that they are investing. This means when they retire they enjoy the fruits of their labor in full without Uncle Sam taking any of the money. The main downside of using a Roth IRA account is that the compound interest being accrued isn’t being earned on top of the gross sum of money being invested. This means that interest accrues at a slower pace.
A traditional IRA lets investors take the opposite approach. Investors don’t pay taxes at the time they invest in taxes are deferred until it’s time to withdraw and retire. The benefit to this is the investor gets interest on all of their contributions before taxes. The downside is that when the investor is ready to withdraw and retire, they may find that they are in a much higher income tax bracket and paying taxes on gains at a time when they no longer have employment income.
Deciding which of these accounts to use really depends on the individual. Somebody who earns an above average income throughout their career may feel comfortable paying their taxes up front as a way to lower their income. The fact that they earn interest on their investments at a slower pace as a result means that having a large nest egg at retirement won’t get eaten away by the government taking its cut.
On the other hand, somebody who may not be able to contribute as much to their retirement savings as they wish they could might want the added benefit of earning interest on top of the gross sum of money that hasn’t been taxed yet. This way they can benefit from compound interest is much as possible. Since they know their income is likely to be lower throughout life, chances are paying income tax during retirement years won’t cost them as much.
There are many other factors to consider when choosing which type of IRA to open. The chart below summarizes everything for your consideration.
|Tax benefits||Tax-free growth and tax-free qualified withdrawals.2||Tax-deferred growth and tax-deductible contributions.3|
|Age requirements||Contribute at any age.||Contribute until you're 70½.4|
|Income requirements||Your income affects how much you can contribute. See current limits||Your income does not affect how much you can contribute.|
|Withdrawal taxes||You won't pay taxes when you withdraw your contributions, and you won't pay federal taxes on your earnings, as long as the five-year aging requirement has been met.2||You will pay taxes when you withdraw your pre-tax contributions and when you withdraw any earnings.5|
|Early-withdrawal penalties||If you make withdrawals before you're 59½, you might have to pay taxes on your earnings plus a 10% additional tax.2||If you make withdrawals before you're 59½, you might have to pay a 10% penalty.5|
|Required minimum distributions (RMDs)||RMDs do not apply during your lifetime.||RMDs must be taken starting in the year you turn 70½.|
*Chart courtesy of Fidelity Investments.
An IRA provider can’t sell alternative assets legally without providing information to the IRS. The records need to be detailed and the need to be accurate. The government needs to know everything that was bought and sold, in what quantity and at what price. That would be an absolute massive headache for an individual investor to undertake by themselves. That’s why using a custodian is necessary.
Regal Assets isn’t just our most recommended IRA provider because of the number of altcoins it offers or because the company offers up to $100 million in insurance coverage. It’s also because they use Kingdom Trust as their custodian support. Kingdom Trust manages more than $12 billion in assets for over 100,000 customers. They specialize in self-directed IRA accounts and they know exactly how to link them to the alternative asset market and keep track of every fluctuation in the market and every transaction that an investor initiates to both acquire and sell those assets.
Regal Assets is our most highly recommended IRA provider. The company uses Kingdom Trust as its custodian. The company currently has over 100,000 clients and manages over $12 billion in assets. Naturally they specialize in helping customers with self-directed IRA’s gain access to alternative assets.
While using an IRA custodian is standard practice and an absolute requirement for any serious IRA provider, that doesn’t mean they’re all created equally. Custodians offers support in different ways and not every custodian has a flawless reputation.
BitGo is a custodian that works with IRA provider Bitcoin IRA. They’re still in the IRA business today but a few years ago found themselves in hot water because they supposedly cooked the books and lied about some of the facts and figures related to a massive hack that attacked customers of cryptocurrency exchange Bitfinex.
Nowadays tighter government regulations around custodians are there to protect customers and BitGo is working hard to repair its reputation in the community, but that doesn’t mean investors shouldn’t do further due diligence. When it comes to investing it’s always better to be safe than sorry.
Market volatility and the chance to earn massive amounts of profits and short periods of time is probably the biggest reason people invest in Bitcoin and other cryptocurrencies. The allure of making fast money without having to do any work has withstood the test of time. But of course, nothing comes too easily and there’s always a cost associated with doing business, even if were just talking about passive investing.
When it comes to investing in digital assets as part of an IRA account, the cost associated with doing business as high. Cost is the major barrier to entry. The fees investors pay out in the Bitcoin world are often much higher than they would be in the traditional stock, commodity or real estate market. Price volatility is just one reason for that.
Another reason is that the cryptocurrency market itself is still in its infancy. While the liquidity of market is growing year after year, the hundreds of billions of dollars floating around the crypto world is still considered a small amount relative to the trillions of dollars in commodities, stocks and bonds that drive the old world economy every single day.
That’s why it should come as no surprise that initial setup fees and commissions can range in the thousands of dollars just to get involved with a cryptocurrency IRA.
For example Bitcoin IRA charges $150 per sale of assets plus a 5% repurchasing fee. Other IRA providers may charge a monthly maintenance fee or an annual maintenance fee. That’s why it’s super important that even after reading reviews and asking friends and family about crypto investing, it’s important to contact these IRA providers and find out about all the terms and conditions.
It should be noted that Kingdom Trust, the custodian that works with Regal Assets charges some of the lowest fees in the industry. They only take one percent on a sale of assets in charge 3.5% per transaction. That’s not too shabby considering that even investors buying crypto just for short-term gains can sometimes pay more than 3.5% on a website like Coinbase.com just to get a few hundred dollars’ worth of Bitcoin.
If you’re already making the decision to invest in digital currencies as part of a retirement portfolio, odds are you’re already sold on the idea of at least learning about altcoins and digging a little bit deeper than Bitcoin.
The potential profit associated with the decision to invest in digital currencies doesn’t just depend on ‘picking the right’ investment so to speak. It’s about the way an investor chooses to allocate all of their money, their level of risk tolerance, their level of experience directing their own investments, and the amount of research and advice they seek out from other sources. Then and only then can a person truly decide whether altcoin investing is right for their retirement plan.
Consider this an in-depth review of altcoin IRAs a good head start as you continue to work towards your investing goals. Conducting research, talking to experts, and designing a retirement plan around your existing situation is all a great start. At the end of the day there’s no replacement for gaining experience. Do what any responsible person would do when making a financial decision for the first time. Start small and when the confidence level is there increase the amount of your investment holdings accordingly.
Good luck in gaining exposure to an exciting new asset class. Though the market may move quickly, take your time, be thoughtful and remember to always keep an eye on the long-term, even if many of your investing goals focus on the short-term. That’s what the world’s wealthiest people do no matter what the investment instrument may be.