Bitcoin has made the news every time it hit new record highs in terms of price and market capitalization. It has been a hot commodity for traders and young adults investing in it hoping to get rich. Yet it has become an alternative investment worth considering for long-term investment, too. For example, it might be a good fit for your retirement portfolio, whether you invest in it directly or indirectly. Let’s learn what Bitcoin has to do with your retirement.
It Is Become a Legal Investment
Bitcoin was never illegal in the United States. However, there are many investments that cannot legally be purchased by large institutions or put in retirement accounts until it complies with the Internal Revenue Service regulations. The first IRS compliant Bitcoin IRA appeared in 2016. You can also invest in hedge funds that are mining Bitcoin. This parallels the practice of investing in gold mining companies instead of buying and holding gold in your IRA.
Several insurance companies are working on investing in Bitcoin, but that is still in the works. And there are other options for annuity companies such as investing in firms developing new applications for Bitcoin. Or they may invest in ETFs that invest in part but not in whole in cryptocurrencies.
It Has Become an Easily Traded Commodity
It takes a certain level of tech-savvy to mine Bitcoin. Every ten minutes, the servers generating new Bitcoins throw out a math problem for waiting Bitcoin miners to solve. The first to give a correct answer gets the Bitcoin. Once the Bitcoin has been assigned, it can be sold and traded like any other currency. In a way, it is similar to an investment in Forex. However, Bitcoin is legally considered property, not currency. This means that the cryptocurrency grows tax-free in your IRA. You won’t owe capital gains taxes on it until you sell it.
Blockchain Technology Will Have a Greater Impact than Cryptocurrency
Blockchain is the uncrackable asset management code behind Bitcoin. And it may be of greater long-term significance than Bitcoin itself. This is because Blockchain is finding applications in smart contracts, credential verification and increased financial security for online transactions. Your annuity advisor probably won’t consider cryptocurrency a good investment, but the annuity might invest in financial firms that are exploring new applications for Bitcoin. You can learn more about annuities here.
Ironically, it is the use of Blockchain to back contracts and manage them that could affect annuity holders the most. For example, a Blockchain based contract could automatically begin payments to a surviving spouse or send the principal back to the heirs upon receipt of the annuity contract holder’s death certificate. This would spare families the difficult process of filling out paperwork and submitting vital records to receive their money. Blockchain could be used to authenticate payments made to a pension and control distributions, as well. Note that the use of this revolutionary technology will drive demand for Bitcoin but doesn’t require you to invest in it to benefit from it.