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From Gold to Bitcoin: The Evolution of Retirement Assets and the Rise of the Bitcoin IRA

Gold has played a vital role in economics and politics, influencing much of human financial activity through changes in economic systems. It has proven to be versatile and stable in the face of upheaval and social change. It has even become an essential tool in global trade and currency exchange as we know it today.

In the 19th century, gold formed the backbone of the global monetary system. Nations relied on the gold standard until the Great Depression and World War I. These events were significant catalysts for inflation and economies, in a decades-long transition, moved away from the gold standard.

This process culminated in 1971, when the Federal Exchange could no longer exchange U.S. dollars for gold. In 1976, the gold standard was completely abandoned and gold became a free asset.

Today, it is still considered a reliable store of value with a well-established market. After all, it has had the luxury of proving its reputation over the centuries – through various cycles of prosperity and economic upheaval. Gold is very liquid and can be easily exchanged or sold in many forms: bars, coins, jewelry or other representative instruments.

Gold versus Bitcoin: the battle of uncorrelated assets

In retirement investing, gold is a decorrelated asset, boasting an average annual return that has reliably kept pace with inflation. In times of economic uncertainty, investors turn to gold because of its reputation as a store of value and its non-correlation with stocks, making it ideal during market downturns.

However, current developments in monetary technology have given investors a new option: Bitcoin. Although it is a relatively new asset whose economic impact is still being felt, Bitcoin has already been nicknamed “digital gold”. It shares many characteristics with gold, including its capped supply and its potential as a store of value.

Additionally, Bitcoin offers a new type of value in the age of connectivity. It can be transferred digitally, something physical gold cannot do. It is the world’s first digital asset, a remarkable feat achieved through the convergence of economic design, cryptography and decentralized networks.

For investors, the perfect portfolio – a balance of assets that reflects an individual’s risk preferences and adapts to the economic climate of the times – is an ever-evolving goal. All professional investors and fund managers are looking for new ways to add growth and diversification.

Retirees are looking for investments that offer diversification, wealth preservation and stability. Additionally, many retirees are looking for continued income that can only come from growth, that is, investments that take advantage of the opportunities of the time.

Finding the right mix of less risky, stable and higher risk growth assets has always been a challenge for even the most experienced financial planners. Some believe that Bitcoin fits into the new retirement portfolio as an additional diversifier. Like gold, it can function as an uncorrelated asset and protect against systemic risks.

Bitcoin IRA: Exposure to the Best Performing Asset of 2023

Another way to replicate current investment products is the creation of Bitcoin IRA. The IRS considers Bitcoin and other crypto investments in retirement accounts to be property. Government rules prevent Roth IRAs from holding “coins” and “collectibles,” but these do not appear to cover Bitcoin.

According to the most recent reports from NYDIG, Bitcoin tops its list of returns for 2023 based on asset class. As of October 6, 2023, it was up 63.3% year to date, outperforming US large caps (28.2%), commodities (6%), cash (3.8%). and gold (1.1%). As its next halving approaches – around April 2024 – many investors are considering Bitcoin as a possible addition to their retirement accounts.

Some IRA providers already offer crypto investments in the form of cryptocurrency IRAs, particularly Bitcoin IRAs. A Bitcoin IRA works like any traditional self-directed IRA (SDIRA) and has the same benefits. Instead of investing directly in Bitcoin and taking responsibility for its custody, Bitcoin IRAs offer the investor convenience, security, and ease.

A Bitcoin IRA allows you to buy and sell Bitcoin in a tax-advantaged retirement account. A Bitcoin IRA allows retirees to maintain traditional retirement accounts while having a separate account that invests in new currencies like Bitcoin.

Why add it to your portfolio?

Many Bitcoin advocates present Bitcoin as “digital gold.” This simplified view has been held and promoted by those who believe that Bitcoin can serve as a reliable store of value in digital form.

Based on this view, Bitcoin investments analogous to gold products are already being created. Just as gold ETFs hold physical gold as the underlying asset, Bitcoin products are structured similarly to these ETFs and provide exposure through exchange-traded funds.

The first applications for Bitcoin ETFs have been filed in recent years, with multi-billion dollar asset managers like BlackRock and Fidelity expressing optimism about their future. A Washington DC court’s recent verdict on Grayscale’s Bitcoin ETF application invalidating the SEC’s argument for denying its Bitcoin investment product has been interpreted as a turning point for the industry.

Proponents of Bitcoin ETFs remain vigilant as efforts to gain approval for a spot Bitcoin ETF persist from prominent asset managers. Depending on the SEC’s reaction, Bitcoin ETF approvals could follow, paving the way for increased demand.

Image of Kanchanara on Unsplash

Making Retirement Planning Less Complex with a Bitcoin IRA

Despite its status as a new asset, Bitcoin’s performance in 2023 has been notable for its ability to maintain a narrow trading range despite intense external pressure. It traded sideways between $25,000 and $31,000, resisting volatility and breakouts in either direction.

Retirees or those planning for retirement who want to add riskier assets to their portfolio, move with the times, and seek avenues for future growth can add Bitcoin to their retirement investments without learning the technical nuances necessary to keep their investment safe. Bitcoin.

They can create Bitcoin IRAs as traditional or Roth accounts. A Roth Bitcoin IRA allows tax-free withdrawals in retirement. A traditional Bitcoin IRA offers tax-deferred growth. Retirees in higher tax brackets can take advantage of this feature.

Why consider Bitcoin IRAs rather than buying and storing Bitcoins directly? Bitcoin IRAs easily extend into estate planning, providing a new advantage over traditional retirement accounts. Swan Bitcoin IRA, for example, offers enterprise-level custody with insurance coverage. It provides an essential layer of protection for retirees who may not be familiar with crypto security.

Additionally, Bitcoin IRAs provide a legal framework for individual investors, protecting them from tax issues, legal uncertainties, and compliance risks. Investors are assured that their investments are fully compliant with current financial regulations.

Although a new instrument, Bitcoin IRAs can pave the way for continued wealth creation during retirement. They offer the potential for growth, diversification and tax benefits in one package within a familiar and regulated environment. They provide a way to benefit from the uncorrelated nature and future potential of Bitcoin.

As with any investment, retirees should consult a financial advisor to confirm whether a Bitcoin IRA investment is consistent with their resources, risk tolerance, time horizon, and financial goals. In the brave new world of retirement planning, Bitcoin IRAs offer an alternative, innovative and compelling proposition for exploring the rewards of Bitcoin investments, even for those who do not delve into the technological complexities of crypto.

This is a guest post from Ivan Serrano. The opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.

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