As Bitcoin and other cryptocurrencies gain credibility as legitimate investments, the investment world is working to make changes. One interesting change has been the acceptance of Bitcoin as a legitimate investment as part of an IRA account in the US.
First, most 401K and IRA accounts have provisions that only allow for traditional investments such as stocks, bonds, and mutual funds. In recent years, the Internal Revenue Service in the US has put forth rules that allow for less traditional type investments in what is termed a “self-directed” IRA. Any potential investment account that allows for the trading of cryptocurrency demands further discussion, especially in light what has transpired in the cryptocurrency market over the past year or so.
By definition, a self-directed Individual Retirement Account is “an Individual Retirement Account (IRA), provided by some financial institutions in the United States, which allows alternative investments for retirement savings. Some examples of these alternative investments are real estate, private mortgages, private company stock, oil and gas limited partnerships, precious metals, horses, and intellectual property.” In other words, some financial institutions have been permitted to offer IRAs, which investors can use to make riskier investments if they so choose. Not all of these specialized custodians allow for Bitcoin trading as of yet, but the trend is heading in that direction.
In this day and age, this makes perfect sense. Thanks in large part to the Internet, today’s average American is much more investment savvy than say the average American of 20 years ago. This has prompted the IRS to view taxpayers as more fiscally responsible, which gives the tax collection agency a willingness to allow IRA investors more leeway related to their investments. This is an important distinction because IRA investments are made from pre-taxed earnings and remain tax-exempt until the individual begins drawing down funds later in life.
As a long-term investment, Bitcoin and other cryptocurrencies hold great promise. Setting aside outrageous claims of tremendous Bitcoin growth in the next couple of years, the time is fast-approaching when Bitcoin is going to be accepted as a viable form of payment for goods and services being provided throughout the world. To some extent, this transformation is already underway. Assuming that it becomes reality, Bitcoin’s pricing should stabilize, making it a terrific long-term investment option.
Of course, these early days of Bitcoin trading come with a bit of risk. We have already witnessed the volatility that comes with any form of new investment vehicle. The reality is investors aren’t quite sure what to make of the Bitcoin revolution. Fortunately, time and experience will solve these issues. As investors gain confidence, we can only imagine the heights to where Bitcoin may travel.
Whether from a Bitcoin wallet or a self-directed IRA in the US, the investment world has found a new friend in Bitcoin. Over the next couple years, we can expect each country to take a hard look at crypto-currencies in general. Regulations will be set forth and much of the mystery will diminish. In the US, the notion the IRS is willing to accept Bitcoin as a viable investment bodes well for the coin on US soil.