Bitcoin IRA: Pros and Cons of Investing in Cryptocurrency for Retirement

First published
February 4, 2022
Last updated
February 4, 2022

Bitcoin has had an interesting year, peaking at $63,000 earlier in May and dipping to a range of $30,000 two months after. With so much buzz around the digital currency, it is no surprise that many investors have started taking an interest - and not just in their investment portfolios, but their retirement accounts too. A report by Nasdaq indicated that there has been a surge in popularity of Bitcoin-funded Individual Retirement Accounts (IRAs) this year - and the numbers are said to be growing. 

With the Federal Reserve increasing liquidity in the economy, it has pushed many Americans to include Bitcoin as part of their retirement arrangements. Though it is not yet widely adopted, the option of investing in Bitcoin for retirement purposes may come with its advantages. 

And if you’re skeptical of the premise, we break down what you need to know before considering Bitcoin as part of your retirement plan. 

What is Bitcoin IRA?

Bitcoin IRA is a Bitcoin Individual Retirement Account. IRAs allow investors to buy into IRS (Internal Revenue Service)-approved assets such as mutual funds. Presently, there have yet to be dedicated Internal Revenue Services (IRS) specifically for cryptocurrencies. Thus, Bitcoin IRA refers to an account encompassing Bitcoin and other digital currencies, enabling investors to park their funds into cryptocurrencies for retirement purposes.

What is Bitcoin IRA
Bitcoin Individual Retirement Account

Benefits of Bitcoin IRA

  • Tax Advantages

Bitcoin IRA is also known to be a self-directed IRA. This allows investors to invest in unconventional asset classes such as gold and cryptocurrency. Self-directed IRAs eliminate - or at least defer - additional costs stemmed from capital gains taxes. Therefore, this makes Bitcoin IRA an attractive investment option for investors looking to avoid capital gains taxes while at the same time, building wealth.

  • Portfolio Diversification

Besides mutual funds, real estate, and bonds, adding crypto assets into investors’ retirement holdings helps to diversify portfolios and minimize the potential risk of market decline in the long run. Moreover, since cryptocurrency has a low correlation to economic data, the inclusion of such digital assets into a retirement portfolio would be a great help in times of economic market downturn. 

  • Potential of Crypto as a Future of Finance

Cryptocurrency is backed by advanced technologies like blockchain. This offers solutions to current traditional financial systems while providing opportunities as useful applications in other industries. Blockchain technology is highly sought after for its ability to perform and confirm transactions without any central governance or authority. This promotes a more transparent method of transaction without data being tampered with. Plus, such transactions would be at a lower cost too since no central authority is involved. 

With blockchain spearheading a decentralized financial system, it can help to improve the current banking and financial systems by ensuring security while solving existing problems such as double-spending. Financial giants such as J.P Morgan and Goldman Sachs have already begun to adopt and support digital currencies, which cements the potential of crypto within the traditional finance space.

Drawbacks of Bitcoin IRA

  • Volatility

It is no secret that the crypto market is indeed extremely volatile. A simple tweet from Elon Musk can immediately boost the prices of some currencies as evidenced by the prices of Bitcoin and Dogecoin

There has also been mixed news surrounding cryptocurrencies that may cause extreme price swings. For one, China’s crackdown on Bitcoin caused its valuation to fall to the $30,000 range. On the contrary, news on Twitter and Amazon taking cryptocurrency more seriously saw prices of digital currencies soar. 

As such, putting all your funds into a Bitcoin IRA may be risky due to the nature of cryptocurrency being volatile. However, as with all investments, it is best to diversify your portfolio, and including Bitcoin IRA into a larger retirement strategy may be ideal.

Another way to alleviate the impacts of volatility is by depositing your crypto assets in interest-earning accounts such as Hodlnaut. Putting your cryptocurrencies in Hodlnaut will allow you to earn up to 12.73% APY on your deposits. The interest is compounded and paid out weekly. By doing so, you are able to maximize the productivity of your crypto assets while ensuring a steady flow of earnings through interest even during extreme price swings. 

  • Fees

Since Bitcoin IRA is a self-directed IRA and can be done through external brokerages, there are certain fees that have to be paid. From minimum fees to platform fees, the total amount may come up to a hefty price. For one, setting up a $50,000 self-directed IRA account can cost around $6,000 in the course of the initial setup, as determined by the provider. There are also recurring custody and maintenance fees, which will add to the overall cost.

Drawbacks of Bitcoin IRA
Drawbacks of Bitcoin IRA

Can You Buy Bitcoin in a 401(k)?

401(k) is a type of employment-sponsored retirement plan in America. This allows employees to park a portion of their salary into their 401(k) account, which is eligible for special tax benefits under IRS regulations. A 401(k) account also provides growth opportunities as the sum can be invested in a range of funds. The earnings are also deferred from tax and reinvested to reap the benefits of compound interest.

According to CNBC, only 70,000 employees in the U.S. are eligible to have the option to invest 5% of their retirement accounts into cryptocurrency. While it may be a small portion, this is a huge step since it was not available previously. 

How to Open a Bitcoin IRA

If you are keen on opening a Bitcoin IRA, here are some key things to note.

You would first have to open a self-directed IRA account. This is so since traditional IRAs and Roth IRAs only allow investors to pick from a pre-selected list of investment products available - and yes, they don’t necessarily have cryptocurrency as an option. 

The guidelines of self-directed IRAs are comparable to regular IRAs, in which you get the same tax advantages while holding a range of alt investment options. With the same regulations, this would also mean you won’t be able to access your money until you are 59 years of age. For self-directed IRAs, there are two options available for you to choose from. 

Firstly, you can create an account with an IRA custodian that operates with a fund like Bitcoin Investment Trust (BIT). With a custodian, you would need to get approval from them prior to investing. And with all custodians, there will be additional fees incurred. 

A checkbook-controlled self-directed IRA is another type to consider. Here, you would have full control of your investments where you would have to establish a limited liability company (LLC) that is owned by your own IRA account. You would then be able to purchase the investment product of your choice through a checkbook or cash transfer. 

Final Thoughts

The key to planning your retirement funds is to always diversify your portfolio, and one way to do so is through Bitcoin IRA. Instead of the usual mutual funds, opt for other asset classes such as cryptocurrency to diversify your retirement plan. This will help you to minimize your overall risk while helping you earn the best returns possible. 

On top of depositing your crypto assets into Bitcoin IRA for retirement purposes, you can also choose to park them in interest-earning accounts like Hodlnaut. This would allow you to earn consistently, even through market volatility. Plus, Hodlnaut offers its users up to 12.73% APY, which is one of the highest interest rates available in the market. 

Sign up for a free account now and drop us an email at should you have any questions. 

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