Crypto IRAs – Advantages and Disadvantages

With extensive experience as an electrical/software/coding engineer along with having a diverse financial background, Thomas Wettermann’s areas of interest include Machine Learning (ML), artificial intelligence (AI), and Financial Technology (FinTech). For the past few years, Thomas Wettermann has focused on the underlying technologies that support and promote all phases of cryptocurrency, Web 3.0, and metaverse ecosystems.

You’ve built up a balanced retirement nest egg including stocks, bonds, mutual funds, and other common investment types. You’ve seen the market cap of many cryptocurrencies explode over the last few years and are now wondering if you can diversify your retirement savings by adding cryptocurrencies. Well, one way to provide this diversification is by opening a cryptocurrency funded Individual Retirement Account (IRA).

What are the Advantages of Owning a Crypto IRA?

First and foremost, your crypto IRA will allow you to experience the tax-free growth of your holdings.

Crypto is not a typical asset like a stock, a bond, or a mutual fund. It, therefore, brings diversification to your portfolio. Cryptocurrencies can therefore act as a potential shield from stock market swings.

Investors add a certain amount of crypto exposure to their overall investment nest egg because of the potential upside for greater returns. Some cryptos have had meteoritic growth in their prices over the last few years.

For example, Bitcoin has seen a 600% increase in valuation over the last five years. Many see crypto as an inflation hedge. Traditional currencies like USD, EUR, or GBP lose their value over time to Inflation. For example, today US inflation is estimated at 7.0%

Unlike certain fiat currencies, cryptocurrencies such as Bitcoin are designed to have a limited supply. These cryptocurrencies cannot be devalued by government actions or by a central bank printing too much of it.

Therefore, your crypto IRA can act as an anti-inflationary investment. For example, some people refer to Bitcoin as “digital gold.” Why? Because just like gold, Bitcoin will not lose its value over time.

The crypto markets never sleep and are therefore active 24/7.

Therefore, a crypto IRA will also provide you with the ability to continuously monitor and invest in your investment portfolio at any time of the day. Indeed, most crypto IRA custodians, like iTrustCapital, provide 24 hour/day, 365 days account access.

What are the Disadvantages of Owning a Crypto IRA?

Before deciding to open your IRA, you should carefully consider your investment objectives, level of experience, adversity to risk, volatilities, and fees. For example, SDIRA custodial fees can get expensive when considering Setup Fees, Annual Account Fees, and Transaction Fees.

If you are close to retirement age, it is important to note that digital cryptocurrencies are speculative investments and have experienced extreme periods of volatility. Cryptocurrencies are not currently regulated and could result in rapid price fluctuations, based on potential regulations or statements made on social media.

Federal Deposit Insurance Corporation (source: fdic.gov)

And finally, the Federal Deposit Insurance Corporation (FDIC) and Securities Investor Protection Corporation (SIPC) provide investors with insurance for certain deposits and investments. However, be aware that cryptocurrency is not covered by the FDIC or SIPC.

In addition, the SEC has warned of the risk of fraud when participating in crypto SDIRAs. Most IRA providers do offer some types of insurance, so you should naturally investigate such coverage before you open a crypto SDIRA account.

Conclusion

If you are looking to diversify your retirement portfolio, adding a crypto IRA to your existing retirement nest egg might be for you. However, you might first consider heeding the advice of some investment professionals suggesting that you limit your crypto investments given their speculative nature.

For example, some investment professionals suggest that you limit your exposure to only 5% of your entire retirement portfolio.

All the views expressed on this site are those of Thomas Wettermann and do not represent the opinions of any entity with which Thomas Wettermann has been, is currently, or will be affiliated.

Trading digital financial assets such as cryptocurrencies can carry a high level of risk, and may not be suitable for all investors. Before deciding to invest, purchase, and/or trade cryptocurrency you should carefully consider your investment objectives, level of experience, adversity to risk, and volatilities. The possibility exists that you may sustain a loss of some or all of your initial investment; therefore, you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with cryptocurrency trading, and seek advice from a qualified and independent financial advisor.

Thomas Wettermann is not an independent financial advisor. Any opinions, news, research, analyses, prices, or other information contained on this website is provided as a general market commentary of Thomas Wettermann and does not constitute investment advice. Thomas Wettermann will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from the use of or reliance on such information. All opinions expressed on this site are owned by Thomas Wettermann and should never be considered as advice in any form.