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Bitcoin IRA: How to Save for Retirement Using Cryptocurrency

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DucationTechnology has revolutionized the way we manage our savings and retirement accounts. Until recently, cryptocurrency was considered too volatile for inclusion in individual retirement accounts (IRAs). Though still plenty volatile, cryptocurrency is now considered too good to pass up. Suddenly, a bitcoin-based retirement account doesn’t seem like such a bad idea after all.

Bitcoin IRA: An Introduction

The bitcoin IRA falls under a much broader umbrella of digital IRAs that are becoming increasingly popular in American investment circles. Digital IRAs are also part of a broader category of self-directed retirement accounts investors can use to maximize their exposure to alternative assets.

A digital IRA – the kind that holds bitcoin, Ethereum and other cryptos – is a self-directed retirement account. Since cryptocurrencies are recognized as property by the IRS, they can be held as investments inside an IRA account. Access to a bigger pool of investments is one of the chief differentiators of the self-directed IRA. In addition to cryptocurrencies, self-directed IRAs offer exposure to real estate, precious metals and a host of other assets. Of course, they can also be used to invest in traditional stocks and bonds.

Self-directed IRAs can also help investors maximize their crypto holdings by offering unique tax advantages that otherwise couldn’t be realized had they purchased them through an exchange. By keeping your bitcoin inside an IRA, you won’t face any tax penalties on investment returns. Of course, this no longer applies when you take the funds out.

Naturally, there are plenty of misconceptions around bitcoin-based retirement accounts. Hacked.com recently connected with Jay Blaskey, digital currency specialist at BitIRA, to clear the air.

Common Digital IRA Misconceptions

Blaskey says there are at least five core misconceptions currently plaguing the market for digital IRAs. Investors should weigh these carefully before deciding to embark on a bitcoin-driven retirement account. More importantly, they should steer clear of bogus claims issued by investment managers.

Here are, in Blaskey’s own words, the five common misconceptions surrounding digital IRAs.

1. “A Bitcoin IRA from company X is unique in that it is fully IRS compliant.”

No company can claim that it has a unique offering simply because it offers a Bitcoin IRA that is IRS compliant. In reality, this is a capability that a small number of companies, including BitIRA, currently offer. In order for a Bitcoin IRA to be IRS compliant, you simply must ensure that you have set up a self-directed IRA with a qualified custodian and that you adhere to the rules of purchasing and storing your assets, so that you don’t run afoul of any IRS regulations.

2. “Company Y recently introduced a Bitcoin IRA which allows investors to roll over an existing IRA or 401(k) into a Bitcoin IRA.”

While this can oftentimes be correct, statements like this from some companies make it sound as though any IRA or 401(k) can be moved to a Bitcoin IRA. However, that is not always the case. For example, if you opened your 401(k) with your current employer, you likely cannot move it to a Bitcoin IRA. One exception is that those who are 59 1/2 years or older may be able to make this move without any penalties. The rules can be complex in some cases, so we often refer our customers to their accountants to fully understand their personal situation.

3. “You should set up an LLC to start a self-directed IRA.”

You don’t need to. It is possible to do it this way, but it will probably be a much more time consuming and complicated solution than going with a company like BitIRA, which does all of the paperwork administration that is required for you. Also if any mistakes are made in the setting up or annual filing, later auditing by the IRS could deem that you made a distribution. In such an event, you would be exposed to negative taxable events along with fines and penalties.

4. What are the rules and fees in place for self-directed IRAs, ie, maximum annual contribution of $5,500, requirement of a custodian, etc.

In terms of functionality, Digital IRAs have the same rules as any other IRA, with the same maximums and custodian rules. In addition, you can set up your Digital IRA as any other IRA – whether it be Traditional, Roth, SEP or SIMPLE.

5. “In order to open a Digital IRA, you must place all of your retirement savings in cryptocurrencies.”

You do NOT need to do this. A Digital IRA is simply a descriptive name for an IRA that contains some portion of digital currencies in your IRA. It falls under the umbrella of a self-directed IRA, which allows for a broad range of investment options within your IRA. Therefore, you can choose the allocation of digital currencies that you’re most comfortable with.

Several companies offer Digital IRA services. In addition to BitIRA, IRA Financial Group and Goldco subsidiary Coin IRA all offer cryptocurrencies. HonestBlock also offers alternative asset custody solutions dedicated to bitcoin.

Ways Forward

The cryptocurrency market is maturing at a rapid rate, with bitcoin and a handful of altcoins offering the biggest investment appeal. Cryptocurrency regulations have struggled to keep pace with the evolution of the market, but investors are generally in the clear when it comes to generating retirement savings via digital assets. In the United States, bitcoin is recognized as a commodity, making it

Although IRAs are only relevant from the perspective of U.S. investors, cryptocurrencies have clearly entered the discussion on retirement savings. Before integrating cryptocurrency into your retirement portfolio, it’s important that you get up to speed on all the regulations concerning digital assets in your jurisdiction.

Disclaimer: The author owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.

Featured image courtesy of Shutterstock. 

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.6 stars on average, based on 695 rated postsSam Bourgi is Chief Editor to Hacked.com, where he leads content development for one of the world's foremost cryptocurrency resources. Over the past eight years Sam has authored more than 10,000 articles and over 40 whitepapers in the fields of labor market economics, emerging technologies, cryptocurrency and traditional finance. Sam's work has been featured in and cited by some of the world's leading newscasts, including Barron's, CBOE and Forbes. Contact: sam@hacked.com Twitter: @hsbourgi




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Crypto Kingmakers: Evaluating Exchange Listings

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Cryptocurrency exchanges have long been considered potential ‘kingmakers’ for up and coming ICO projects both pre and post launch of crowd-funding rounds owing to reputation, trading volume and community value, as well as prior experience of shrewd coin selection.

Cryptocurrency exchanges are (at a base level) responsible for fostering liquidity in the market whilst providing competitive choices for investment consumers in the market: both with regards to the exchanges themselves as well as the diversity of the coins they offer for trade.

When a new token is announced for listing on popular platforms such as Coinbase or Binance for example: trends show an increase on interest as represented by value and investment potential. Whether this offsets the prohibitively high cost of entry incurred by such service providers however is yet to be proven.

Separating the Kings from Pretenders

2018 has not been a fortuitous year for many start-ups and underdogs.

Whilst data shows an overall increase in investment volume for new ventures, it also shows a significant failure ratio within these same figures. In fact, data published by tracking agency ‘ICORating’ suggests that a majority (55%) of these initial coin offerings have failed within just the second quarter of this current year.

Potential reasons for this include a ‘bubble’ effect resulting from the artificial inflation of token prices which in actuality hold little to no real value, inability to acquire funding or meet expectations, and the difficulty of gaining attention and penetrating a highly competitive space.

Considering the reported failure rate of ICOs at present, it would be reasonable to exercise caution when considering investment in any of the influx of new tokens on the market (no doubt exacerbated by recent decisions made by Coinbase).

A Utilitarian Perspective

This writer reccommends that you apply critical thinking, solicit the advice of experts and knowledgeable friends, do your own research and cross-reference it with those of pundits and your peers, and do not let anybody encourage you to make any premature decisions. This is all simple advice easily taken for granted, but timeless nonetheless.

We host our own series ICO Analysis / review articles at Hacked.com: articles that break down each project into its fundamentals: such as the strength of the team, technical theory and existing products, and other factors. All of these fields can be incorporated into your own research and analyses. Additionally, I myself frequently publish interviews with a wide range of leaders and experts.

If a coin has no real actionable purpose, inexperienced leadership, technical fallacies, poor communication, or any combination of the above plus more – then there is a good chance that said coin holds no real value, beyond they professed by its proponents.

Looking at Trends

We can’t predict the future, however there are some observable indicators and trends which could point towards the next coins to be chosen by top platforms.

After the PR nightmare surrounding Tether of late, there has been something of a rush of new contenders attempting to become the next stable-coin (a fixed-value token used for off-setting bear markets, or to be used as an intermediary. One of the most talked about of these is the Winklevoss twins’ ‘Gemini Token’.

Adjacent to the ‘Gemini Token’ is the unique investment orientated token from BitMart exchange entitled the ‘BMX Token’. Like a stable coin it can be used as an intermediary for exchanges with other forms of cryptocurrency, however it has the added benefits of affording token-holders discount on all on-platform transactions in addition to being able to stake these coins towards potential new coin listings in the future.

I have also frequently borderline evangelised Terra Virtua on this site and beyond.

As a disclaimer I have no holdings or stake in any of the above companies or tokens. Additionally, I possess a small and transient amount of Bitcoin.

Featured image courtesy of Shutterstock.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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The Basics of ICO Investing: A Brief Reminder to Those Who are New to the Game

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The ICO market has been heating up for a little less than a year now, but it truly has turned into a new wave of technology. The amount of wealth being created is insane, and it can be difficult to keep up with the rate of change that is occurring within the industry. It is like the tech boom of the early 2000’s all over again, and this is your chance to mint a lot of money.

Researching ICOs

If you’re looking to put some money into an ICO, the first step is tracking down the right one for you. There are lots of websites devoted to the different ICOs that are currently underway or planned to be soon, but CoinSchedule is my personal favourite right now. You can find out about new ICOs here, and then the hard part begins.

You need to perform your own due diligence to figure out if the ICO is right for you. You can look through forums and Reddit, but gaining an understanding of the fundamentals of the company (team, product, market size) is the only way to avoid losing all your money in the long-run.

Telegram is a great chat platform for connecting with others, and there are a lot of expert level people who are willing to share tons of information about cryptocurrencies and ICOs, so I would recommend you check out that tool.

The Due Dilligence Process

There are a few key insights you need to apply in your investing process. First, the cryptocurrency community is segmented into different use cases, and there likely to be only one successful project for each use case. So before you do any investing in a certain project, it is time to do an analysis of the competitive landscape. You don’t want to be betting against yourself by putting money in multiple projects in the same sector, so it is likely you’ll want to choose only the project you think is most likely to succeed.

To learn more about the project, most companies have Telegram channels where you can observe the community and get and idea of what the developers are like and where the project is heading. In general, Telegram is an invaluable research tool.

Finally, you’ll want to examine the amount of supply the company is keeping to itself. You want the founders to have “skin in the game” still, but you also don’t want them to have such a high proportion of coins on hand that they can gain a profit and then start to de-risk by selling off their holdings.

Going Through with the Purchase

Assuming you’ve finally selected a coin you would like to purchase, it’s time to execute. Most coins are supported by Ethereum, so you’ll need to purchase some Ether and move it to a wallet that will support a variety of coins. Currently, I use MyEtherWallet.

Purchasing the coin is actually much simpler than you would think. All you need to do is get the public address of the ICO and send them the amount of Ether you want to invest. They will send you your tokens when the ICO closes, and you have successfully participated in your first ICO.

Know Your Client (KYC) rules are for keeping track of your identity and following the security regulations of your jurisdiction. In the beginning, it was rare a company would follow them, but now that regulators are cracking down, you will likely have to provide all your identification information in order to participate.

If you do want to sell your tokens at any point, you can use an exchange like Binance that allows trading of a wide variety of tokens.

Watch for Pump n’ Dumps

As long as there have been equity investments, there have been pump n’ dump schemes. Aptly named “shitcoins”, there are numerous projects that ICO without a product or even a hope of developing them. The lack of regulations is making this possible, and this is exactly why you need to do your due diligence.

An often pointed out criticism of ICOs is that no one on the team has built anything yet. There is the feel of a group of people seeing an opportunity and jumping on it because there is a chance of high profits, rather than them being able to contribute a lot to the space. So as you look out for “shitcoins”, you should be especially aware of projects that talk about the amount of money they’ve raised, rather than what they’ve built.

Understanding the Risk

The first thing that everyone should know about ICOs is that they are still unregulated. Where IPOs receive intense regulatory scrutiny, ICOs are mostly self-regulated at the moment. Considering the fact that most of these companies are coming from people with little or no track record, it is imperative you are careful about where you invest your money.

Yes, it is a  good thing that you can now make large asymmetric bets that used to be regulated out of your reach, but research is always the answer. For example, if you have a token for a company that doesn’t have a use case aside from funding the company, it won’t serve as a good store of value. With the implementation of the lightning network, cross-chain atomic swaps will eliminate the need to hold these tokens, and their value will trend to zero. Understanding future shifts like this is the key to a long-lasting investing career.

Featured image courtesy of Shutterstock.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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How ICOs Changed the Way Companies Are Built

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With cryptocurrencies now becoming a household name, investors are starting to look into plays they can make that are more off the beaten path. The market for initial coin offerings (ICO) offers just that, albeit with a dash of risk that traditional initial public offerings (IPOs) do not offer. 

Restrictions on Venture Capital

If you want to make money in Silicon Valley, you need two things: connections and capital. Connections are required, because a lot of projects end up oversubscribed anyways, and you need an advantage over many of the other investors. It also helps if you can provide aid to the company additional to just giving them your capital (e.g. advising on product, marketing, or hiring). The unspoken rule is that you do usually have to be located in Silicon Valley to do well as a startup investor.

Large amounts of capital are also required for regulatory and convenience reasons. Venture capital is considered to be very risky, and as such, it is generally restricted to be accessible only to accredited investors, who must have either an income greater than $200,000 per year or a net worth greater than $1,000,000.

Additionally, most companies didn’t have the bandwidth to deal with having hundreds or thousands of smaller investors, because of the meetings, due diligence, and paperwork required. It was much easier to take larger investments from a small group of people, and keep things simple.

Democratizing Venture Capital

For both these reasons, the number of people who have benefited from the gains in massive technology startups have been very few. Now, with ICOs the possibility arises that investors may join in on the gains, thus democratizing the gains and spreading them out throughout the country and world.

The ability to make asymmetric bets (wagers where there is a high possible upside, but limited downside) has been restricted for a long-time. Lottery tickets are the closest example of a purchase you can make that could result in a 10,000x return, but with the downside capped at the size of your investment.

In a world where income inequality and wealth distribution is a constant source of conflict, the spreading out of these returns could prove to be increasingly important for making sure it doesn’t get worse.

Structure of an ICO

As Hacked readers are no doubt aware, an ICO generally occurs when a cryptocurrency startup wants to raise money. They either have something they’ve already built, or they have a white paper that outlines their business plan and how much money is needed to create and scale the project.

The ICO is carried out by exchanging fiat currency or other cryptocurrency for the “token” in question. A token is considered equal to equity in the company in this analogy, although most firms contend that the tokens are not securities for regulatory reasons (see: Howie test).

ICOs are popular for both investors and traders, as there is an expectation in an increase of market price after the ICO, as well as high volatility (which traders love). Looking at a website like Coin Schedule, you can see the amount of hype that is floating around ICOs at the moment.

Recent Trends in Fundraising

As ICOs become more popular, many companies are going through similar experiences during the fundraising process. Some companies are asking for such high valuations right off the bat that there is little upside for the investors, and a greater chance they will lose money.

If excessive amounts of money are raised before a product has even been built, there is much greater risk in the project. Additionally, there are fewer investors who have made enough money on a project to justify staying invested during a bear market. Compare this to Bitcoin, where some have owned it since its price was in the single digit range, and you can see the difference.

Projects that are heavily inflated upon ICO’ing are losing out on the longer-term opportunity, unfortunately. Some people forget that the most well-known cryptocurrency of all began using an organic mining process rather than an ICO. Although there is almost no money inflow when this is done, it creates a rabid community of supporters who believe in the product, rather than short-term speculators. This solution would not work for all ICOs, but for some, it might be a viable solution.

More than Just an ICO

The ICO is the most well-known part of the process, but often these projects will require money to get them to that point. This is where the Pre-ICO and Pre Sale come from. The Pre-ICO is similar to the “friends and family” money that any business starts off with. It is what is required to get the project off the ground. Then you have the Pre Sale, which is where larger investors who are going to help build the companies product and profile get to buy tokens at a lower price than the ICO price in exchange from their help.

Finally, and it is very necessary to make this clear, all of these projects carry a ton of inherent risk, and a significant amount of research should be undertaken before any investment is made. Where many of the past IPOs had undergone a massive amount of due diligence and had backers who understood the technology, we are seeing many investors hop on the investing train without fully understanding how everything works.

Featured image courtesy of Shutterstock.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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Hacked.com and its team members have pledged to reject any form of advertisement or sponsorships from 3rd parties. We will always be neutral and we strive towards a fully unbiased view on all topics. Whenever an author has a conflicting interest, that should be clearly stated in the post itself with a disclaimer. If you suspect that one of our team members are biased, please notify me immediately at jonas.borchgrevink(at)hacked.com.

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