The skyrocketed price and attention paid to cryptocurrencies in recent months has undoubtedly fueled general interest in investing in digital currencies.
While many consumers are directly converting USD on digital currency exchanges like Coinbase or Kraken, most Americans don’t have more than a few hundred dollars in their savings accounts. For many, their wealth is stored in their homes, 401(k)s, or Individual Retirement Accounts (IRA).
Some people are even taking out mortgages on their houses to fund crypto investments. But, because cryptocurrencies are treated like property by the U.S. government, individuals can also opt to invest in Bitcoin through the funds locked up in their IRAs.
One cryptocurrency custodian, CoinIRA, was launched earlier this year by parent company Goldco, a firm that helps consumers exchange stocks and bonds for investments in precious metals like gold and silver in their retirement accounts. Goldco touts precious metals as a means to shore up against the dollar crashing in a potential financial crisis.
Now that consumers have the option to diversify their self directed IRA through investment in cryptocurrencies, Morgan Steckler, CoinIRA’s vice president of sales, said they are focusing on educating people about the new digital assets.
“It’s a disruptive technology. Digital currency will do to money what email did to the post office or what Netflix did to Blockbuster or what Amazon did to Sears. This is not going to go anywhere,” Steckler said.
Kirk Chisholm, wealth manager at Innovative Advisory Group, an investment advisory firm specializing in self-directed IRAs, advises investors to do their own due diligence or consult with an IRA expert before investing a portion of their IRA with these custodians.
“I would suggest, if somebody is buying cryptocurrencies inside of their retirement account, they get their own separate opinion,” Chisholm said.
But, when done right, Chisholm said he does see cryptocurrencies as an interesting investment. While volatile, Chisholm said investing in cryptocurrencies is something like going to the casino. Yes, you have the potential to lose all of your money, but you also have the opportunity to make 3, 5, or 10X your money.
As with any investment, Chisholm said consumers shouldn’t invest any more money than they can reasonable stand to lose.
CoinIRA offers digital currency IRAs in three risk portfolios: conservative, moderate, or aggressive. The conservative bundle is 50% Bitcoin, 41% Ethereum, and 3% each in Ether classic, Litecoin and Ripple.
CoinIRA partners with Xapo, a Bitcoin wallet allowing consumers to view the exact address of their cryptocurrency and monitor its performance any time of day. If at some point a consumer changes their mind about holding cryptocurrency as part of their IRA portfolio, they can call CoinIRA. Steckler said the cryptocurrency will be converted back to a cash asset with the consumer’s original investment firm within one business day. Following current IRA regulation, no fees will incur unless a consumer decides to withdraw their money from their IRA altogether. CoinIRA declined to say how much they charge customers for their custodial services, stating that “fees vary for each investor and are dependent on several factors.”
Within the last year, several companies have surfaced marketing the ability to invest in a “Bitcoin IRA”, including BitIRA, IRA Financial Group, and HonestBlock. This surge in interest is shaping the products offered by not only fintechs looking to capitalize on the opportunity or excited about the technology, but traditional financial institutions looking to service consumer demands. In August, Fidelity introduced the capability for consumers to view their cryptocurrency wallet on Coinbase alongside their other IRA investments.
It looks like the demand for education about buying and investing in cryptocurrencies could represent and stimulate further mainstream adoption.