Estimated reading time: 3 minutes
Cryptocurrency has dominated the news over the last couple of years, and it’s been a wild ride. Investors have flocked to this new digital currency, and purchasing options have multiplied.
If cryptocurrency is an asset that interests you, the good news is you can invest in “crypto” with your self-directed IRA (SDIRA). Whether you invest with your traditional or Roth IRA, your SDIRA allows you to pair a tax-advantaged strategy with a crypto investment strategy.
Cryptocurrencies are digital currencies secured by cryptography. These virtual “coins” are created when transactions are verified or processed on decentralized computer networks. These networks are based on blockchain and cryptography, which makes crypto almost impossible to double spend or counterfeit.
The initial goal of this decentralized currency was to allow people to have more control over their money without relying on third parties such as banks and financial institutions. It also was designed to help eliminate a single point of failure in the market.
New cryptocurrencies are mined every day, and there are thousands of digital currencies. Bitcoin and Ethereum are the largest currencies by market cap, but many others such as Tether, XRP, and Binance Coin are also popular.
Cryptocurrency, however, is a relatively new asset known for its volatility. Given the nature of crypto and its newness in the market, regulations and oversight are still in flux and subject to scrutiny. This environment can lead to increased risk for the asset.
Investments in cryptocurrency require using a digital wallet to hold your crypto. In some cases, investors are also responsible for keeping track of the keys to their wallet.
There are two ways that you can invest in cryptocurrency through your SDIRA.
Invest in cryptocurrencies using an investment product structure you’re already familiar with. Similar to a mutual fund, digital currency funds allow you to invest in the stocks of companies that hold coins or have cryptocurrency-related services.
Investing in a digital currency fund can give you an indirect way to invest in crypto and bypass the need for a wallet or keys.
Here’s a brief look at the process.
As with any public or private funds, your SDIRA pays any associated fees. Keep in mind that there may be restrictions limiting your access and ability to sell your shares in the fund.
Another way to invest in cryptocurrency with an SDIRA is via an LLC. There are a number of benefits associated with this structure including potential liability protection and direct access to your retirement funds via checkbook control. However, there is a cost to create and maintain an LLC.
You’ll need to establish a wallet. With an LLC, your SDIRA can hold a private wallet or can choose to have a wallet on any exchange platform.
Here’s an overview of the process:
Learn more about this emerging asset by listening to our recent webinar on cryptocurrency investing co-hosted by Rayhaneh Sharif-Askary, Director of Investor Relations and Business Development at Grayscale.
Questions about cryptocurrencies and how you can invest in them with a SDIRA? Chat with one of our experts today.