For many, the most dreadful picture of the future is one without a supporting income and most golden-aged individuals can attest to the bitter experiences that result from not planning for the sustenance of their future after work. And for those who once sat in the stiffed legged chairs of a bank office seeking advice on retirement are familiar with the old advice — ‘don’t put all your eggs in one basket’; diversification is truly key to hedging a retirement saving.
With numerous investment opportunities in the market today, BitcoinNews.com explores if Bitcoin individual retirement account (IRA) could be a viable retirement option and provide a virtual twist to the golden years.
But knowing the right combination of assets to have in one’s portfolio could be really daunting, especially when you lived through the 2008 financial crises, it’s hard not to think it through. Mike Novogratz had recommended a 1% investment of an entire hedge funds capital into Bitcoin. Though a very small percentage, however, Bitcoin’s volatility has been known to do wonders at the extremes. In fact, funds that bought the dip in the winter of 2018, would be smiling a lot better now as Bitcoin has made more than a 100% turn around since its 2018 low.
As for a retirement plan hedged to Bitcoin, the situation may be a lot different as the long haul is the game plan, and who knows what will become of blockchain, Bitcoin, or a host of over 2,000 other digital assets in the market out there? But what if one could control the outcome and significantly spread the proceeds during positive price movements in order to mitigate the risks of exposures during the lows, would crypto-based IRA now seem appealing?
The perfect IRA decision?
Many who took on the responsibilities of their IRA are at least exposed to one or more forms of retirement risks. And for most, the fear of indecisiveness to deliberately participate in their future financial plans far outweighs the exposure to uncertainties. A new trend is on the rise; seniors and pensioners are taking on risks in emerging markets such as cryptocurrency investments, and this could be one of the highest risk-exposure there ever was.
One company that crosses our radar is Bitcoin IRA, one of the earliest providers in the space that offers the opportunity to invest, and trade cryptocurrency directly from an IRA account, thereby leveraging the tax-advantage that comes with it. The company assures its clients of an insured amount of USD 1 million on every trade and has recently been insured of USD 100 million with BitGo Trust.
Bitcoin IRA claims “thousands of proud customers who have made incredible returns with [their] service”. Moreover, the following were supposed testimonials of real clients as depicted on the site:
“I turned a $120,000 investment in Ripple into over $1.8 million.” Kristine S.
“I understand just enough about blockchain to know it’s the future.” Anne Y.
“As long as you’re investing in your future, why not invest in THE future.” Patrick H.
These testimonials beg the question: Is investing in the blockchain or crypto-based IRA really worth it, or it’s just a fad and would bust like other bubbles before it? More importantly, as it concerns retirement, should seniors really be dabbling into this industry or find something ‘more secure’ or ‘less volatile’ or perhaps diversify into something with a little more than just a decade of existence? Well, the answer couldn’t be simpler, there aren’t any more classical investments that transcends generations with any surprising investment opportunity. So people are literally looking to the future to hedge the future – at least that’s what the remarks from two of the testimonials above could imply.
But the truth is these stories about the new ways of hedging a retirement portfolio to cryptocurrency-related investments could not be more inspiring given the historical performance of the crypto market and aligning those to a general outlook of investments into emerging markets throughout history. Regardless, using retirement funds to dabble into cryptocurrency is a feat to reckon when considering the risks of volatility.
They’re doing it, why not us?
Earlier this year, asset management firm Morgan Creek Digital Assets (MCDA) announced the launch of a venture fund called Morgan Creek Blockchain Opportunities Fund, which was worth USD 40 million and for the sole purpose of venturing into digital asset space. Remarkably, this amount raised was 60% over the expected raise – it was oversubscribed; and notably, two public pensions among other institutions were involved in the raise. Co-founder Anthony Pompliano thought it was the “first public pension money in crypto”.
During the 2018 bearish market for cryptocurrency – often thought to be the boom and bust of crypto – pushing many crypto startups to the edge as valuations were down, it would appear that while some investors became even warier of the market, others were taking opportunities. Chief investment officer of Fairfax County Police Officers Retirement System Katherine Molnar had said in a statement following the investment in Morgan Creek’s Fund (being one of the two pension funds involved in the raise):
“Blockchain technology is being applied in unique and compelling ways across multiple industries. We feel it is important to be opportunistic and are excited to participate in this emerging opportunity.”
This means that there are those, even in the most conservative investment circles that may be looking beyond the speculative values of cryptocurrency onto a more holistic role of the underlying technology from a macroeconomic perspective.
It should be noted here that pension funds used to be one of the most conservative institutions there is, and would typically only apply themselves to core-assets investments. However, more recently, they’ve become rather forward-thinking in their investment approach and have extended their portfolios to include other asset classes which could hedge against inflation. Pension funds now focus on these areas; government securities, investment-grade bonds, blue-chip stocks, private equity, real estate, infrastructure, and possibly a spot for cryptocurrency/blockchain on that list is on the horizon.
Two things are being targeted by Morgan Creek’s Fund: Cryptocurrencies and the technology behind their innovation – the blockchain. On the cryptocurrency perspective, portions of the fund have been diversified into upcoming startups such as Bakkt, and cryptocurrency exchange Coinbase. Another portion is reasonably spread across the top-performing digital assets in a cryptocurrency index, where Bitcoin takes the largest percentage of this index.
According to MCDA co-founder Jason Williams:
“Many of the largest, most valuable companies of tomorrow will be built using this [blockchain] technology.”
William’s speculation about the future prospects of blockchain technology seems to reecho the most favored sentiment across the industry – ‘Blockchain will be worth something someday, you just got to hodl’. And in the meantime, lots of investors have made turnovers on their investments as they ride the volatile curves, and without doubt, others have lost life savings as well.
It’s more of a millennial thing!
A recent tweet by twitter user Rhythmtrader suggests Bitcoin-related investments are more favorable to millennials:
Bitcoin is this generation's pension.
— Rhythm (@Rhythmtrader) July 31, 2019
When crypto is taken up exclusively, a good number of millennials seem to be more supportive of the industry than the older generations, and they don’t mind a 401k plan hedged in crypto. A study by Swiss Fintech company Creologix buttresses this point when it concluded that most millennials were not saving for retirement, but increasingly buying cryptocurrencies for their future financial security.
On the other hand, the older generations are a mixed bunch with varying sentiments towards the adoption, the everyday use of cryptocurrency, as well as the hedging potential of a portion of their retirement funds in crypto. More so, a huge deterrent would be the comparatively high fees for custody and security of portfolio with an IRA provider in comparison to a traditional cryptocurrency exchange. Another challenge with this type of investment is the lack of regulatory oversight in the cryptocurrency industry, which makes it hard for people to readily adopt the cryptocurrency.
In addressing the fee issue, Bitcoin IRA told CCN:
“Our partnership with BitGo Trust provides our clients with faster account funding, lower fees, as well as significantly increased insurance protections.”
So why choose a Bitcoin facilitated IRA?
The truth is Bitcoin’s investment thrill has got a lot of people hooked, such that both millennials and seniors wouldn’t mind a piece of the action, so long as it’s just a significantly small portion of their portfolio.
Apart from BitcoinIRA, BitIRA is another company that offers a retirement investment plan in Bitcoin. It offers the opportunity to roll over an eligible 401(k) or IRA plan from a third-party custodian such as Fidelity investments into a Bitcoin IRA plan, as the latter does not yet allow the direct purchase of cryptocurrency on its platform.
However, the two major advantages a Bitcoin IRA confers include tax free growth, and hedge against fiat inflation, as Bitcoin is finite and no more of it can be minted, unlike the counterpart fiat system where the government dictates how much of fiat should be printed, which in effect could render one’s retirement savings of little value. As far as a cryptocurrency IRA goes, it’s still too early to tell how long it would take before it becomes rapidly adopted and what relative impact it might have on the perception of retirement funds. But the growing demand from institutions could be a strong signal that there’s a possibility of a larger on ramp of Bitcoin facilitated IRA plans.
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