Self-Directed IRA Cryptocurrency Investing: Your Questions, Answered!

We’ve already went over the finer points of Bitcoin investing using a self-directed IRA. However, cryptocurrency is such a new retirement investment that even those with prior experience face questions. Today, we’re answering three major questions in this handy Q and A guide. Don’t let your questions stop you from this whole new digital world of investment potential.  

Question 1: Is Cryptocurrency Investing With a Self-Directed IRA Allowed?

The short answer is, yes. The only types of investments the IRS specifically forbids is collectibles and life insurance. However, the IRS doesn’t specifically list cryptocurrencies as an alternative investment. But this shouldn’t cause concern, as the IRS has been historically hesitant to endorse investments, as this can backfire later on.

Question 2: What Entities Are IRS Approved to Administer My IRA?

Just like real estate or other alternative investments, cryptocurrency must go through a custodian administered self-directed IRA. With this structure, you’re handing over a transaction fee and access to your cryptocurrency wallet PIN. This risks safety and increases administrative cost.
Another option is to invest using an LLC as an extension of the IRA. This gives you "checkbook control" over your investment funds, since you become the manager of the LLC. However, like an LLC for any other purpose, it requires legal work to establish. Plus, you have to establish a checking account to link with the LLC. Lastly, investor confidentiality isn't maintained since LLC agents must have their names filed with state records. We eliminate some of these pain points by establishing an IRA linked trust, where you as the trustee gain immediate access to Bitcoin and other cryptocurrency investments.

What Factors Influence Cryptocurrency Prices?

We can examine this question using Bitcoin as an example. According to Arthur Hayes, CEO of the BitMex cryptocurrency exchanges, Bitcoin prices can reach $50,000 in 2018. Here are some price factors to consider:

  • Remember Bitcoin’s limited supply of 21 million units. When that limit approaches, prices are expected to soar as supply becomes limited.
  • Understand Bitcoin’s unique features and how they can impact growth. As an open source program, expect rapid and sometimes unexpected changes. Also, Bitcoin relies on a huge community of Bitcoin miners. Their actions can positively or negatively impact prices.
  • Expect Bitcoin’s adoption rate among merchants and rival cryptocurrencies to influence prices.
  • Stay up-to-date on critical IRS decisions. The IRS already established that profits from IRA owned Bitcoin sales aren’t taxed at the time of those gains. Instead, they are taxed at the time of retirement. Further favorable regulations can spur Bitcoin demand and prices.
  • Expect world-wide regulations to cause volatility. When Japan accepted Bitcoin as legal tender,  global prices rose by 160 % over the next few weeks. In contrast, when China banned initial coin offerings prices went down nearly 30 % over a day.

Streamline Cryptocurrency Investing

We’ve answered some important questions regarding regulations, pricing factors and how to structure and administer your self-directed Bitcoin IRA. We can answer more of your questions and walk you through our online platform, which streamlines the entire setup and investing process. Contact us today if you have additional questions.

Last Updated: 
March 20, 2018

Scott Royal Smith is an asset protection attorney and long-time real estate investor. He's on a mission to help fellow investors free their time, protect their assets, and create lasting wealth.

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