Cryptocurrencies are heating up as a legitimate investment as the Cryptocurrency Act 2020 makes its way through Congress. This proposed bill would set clear regulation guidelines on crypto investments, but you don’t have to wait to start integrating them into your portfolio. With such a volatile market, they’re best to hodl, and if you do trade, using an IRA to do it is a cheap option being offered by several crypto startups hoping to make names for themselves.
That’s because you don’t pay capital gains on the distributions. It’s a perfectly legal way to integrate crypto asset investments into your retirement portfolio. An emerging startup is making that process easy to protect your overall investment plan for the 2020s and beyond.
Investing in Cryptocurrencies
Traditional investment advisors avoided recommending investments in crypto assets in the 2010s. This was due to two main factors:
1. Market Volatility
Initially released in 2009, Bitcoin (BTC) usage didn’t achieve mainstream recognition until it reached a historic high of $19,783 in late 2017. Investigations later found the Bitfinex exchange used the Tether (USDT) stablecoin to artificially inflate the price.
Cryptocurrencies since plummeted in value, stablizing around $10k at the start of 2020. This unstable (and still relatively young) market deters those with minimal risk appetites. It doesn’t help that trading crypto can be an expensive task performed on sometimes sketchy markets.
2. Lack of Regulatory Oversight
Regulation in the form of the Cryptocurrency Act 2020 was long in the coming. The U.S. Securities and Exchanges Commission (SEC) has been actively focused on cryptocurrencies and blockchain projects like BTC and Ethereum (ETH).
Clear regulatory guidelines will alleviate the situation. The Cryptocurrency Act divides crypto assets into three categories.
Cryptocurrencies, like BTC, are used as spendable exchanges of value, much like fiat currencies. They would be regulated the same way currencies like the U.S. Dollar are.
Cryptocommodities, like CryptoKitties, are fungible crypto tokens that reside on a digital cryptographic ledger. They would be regulated the same as physical commodities like gold.
Cryptosecurities are any other tokens that fail the SEC’s Howey Test. The Howey Test was created to determine whether a transaction represents an investment contract. If so, they’re regulated by the SEC.
This clear regulation makes it easier to navigate the complicated crypto landscape. Not only are these three classes more familiar to regulators, but investors can benefit by understanding how exactly to integrate them into their current investment portfolios.
What Is an IRA?
An individual retirement account (IRA) is a federally recognized retirement account that helps you save money on either a tax-free or tax-deferred basis. Traditional IRAs and Roth IRAs are the most common types.
They work essentially as a legal tax shelter. By enabling portions of your earnings to be deferred into an IRA account, you relieve yourself of the tax burden until you withdraw from the IRA.
Using IRA accounts to trade crypto helps offset the tax burden. If you bought one BTC back in the sub-$1 days and still have it, you ended up paying taxes for nearly $20,000 in capital gains, even if you didn’t sell. This may have contributed to some of the anti-crypto sentiment in 2018 and 2019.
IRAs are helping crypto investments make a big comeback in the 2020s, and savvy investors are already jumping on board.
A New Way to HODL Cryptocurrencies
Cryptocurrencies have exploded over the past decade, growing from Bitcoin to over 2000 crypto coins and tokens. The underlying decentralized digital ledger, smart contracts, oracles, and blockchain technologies are powering the next generation of enterprise and consumer innovations.
New companies are popping up with promises to combine IRAs and crypto into more stable investments. Only time will tell if any of them succeed sustainably or if this is just another Wolf of Wall Street penny stock thing.