Gold has been a key player in politics and economics, influencing changes in economic systems and much of human financial activities. It has shown adaptable and steady in the face of societal shifts and upheavals. It even turned into an essential tool for international trade and currency exchange in the modern era.
Gold served as the foundation of the world’s monetary system during the 1800s. Up to the Great Depression and World War I, countries operated under the gold standard. These occurrences served as important triggers for inflation, and economies abandoned the gold standard over the course of several decades.
When the Federal Exchange could no longer exchange US dollars for gold in 1971, this procedure came to an end. The gold standard was completely dropped in 1976, at which point gold became a free asset.
It is still regarded as a trustworthy store of value with a thriving market today. After all, it has had centuries to establish its name during many economic upswings and cycles of prosperity. Gold is very liquid and can be bought or sold in a variety of forms, such as bars, coins, jewelry, or other tokens.
THE BATTLE OF UNCORRELATED ASSETS: GOLD VS. BITCOIN
Gold is an uncorrelated asset for retirement investments, with an average yearly return that has consistently kept up with inflation. Due to its reputation as a reliable store of value and its lack of correlation with equities, which makes it perfect during market downturns, investors resort to gold during difficult economic times.
But investors now have a new choice thanks to today’s developing financial technology: Bitcoin. Even though Bitcoin is still a relatively young asset with undetermined economic effects, it has already earned the moniker “digital gold.” It is similar to gold in many ways, such as having a limited quantity and having the ability to be a valuable store of wealth.
Additionally, in the era of connection, Bitcoin offers a novel kind of value. It can be transmitted digitally, which is not possible with physical gold. It is the first digital bearer asset in history, a tremendous accomplishment made possible by the fusion of decentralized networks, cryptography, and economic design.
The ideal portfolio, which is a blend of assets that matches a person’s risk appetite and the state of the economy, is a moving objective for investors. Professional fund managers and all investors look for novel approaches to increase growth and diversity.
Investments that offer stability, diversity, and asset preservation are what retirees look for. In addition to this, a lot of retirees look for ongoing income, which comes from growth and investments that take advantage of current opportunities.
Even the most seasoned financial planners have always had difficulty determining the ideal combination of less risky, stable, and higher-risk growth assets. Some think that adding Bitcoin as an extra diversifier to the new retirement portfolio makes sense. It can function as an uncorrelated asset and systemic risk hedge, just like gold.
EXPOSURE TO THE BEST PERFORMING ASSET OF 2023: BITCOIN IRAS
Making Bitcoin IRAs is another method to mimic the present investment products. Bitcoin and other cryptocurrency investments held in retirement accounts are regarded as property by the IRS. It appears that government regulations prohibit Roth IRA holders from retaining “coins” and “collectibles,” but they do not seem to apply to Bitcoin.
Based on asset type, Bitcoin leads NYDIG’s 2023 returns list, according to their most current reports. With a 63.3% year-to-date gain as of October 6, 2023, it outperformed US large caps (28.2%), commodities (6%), cash (3.8%), and gold (1.1%). As Bitcoin approaches its next halving in April 2024, a lot of investors are considering adding it to their retirement portfolios.
Bitcoin IRAs are one type of cryptocurrency that certain IRA providers currently offer as crypto investments. A Bitcoin IRA offers the same advantages and functions similarly to any conventional self-directed IRA (SDIRA). Bitcoin IRAs provide investors comfort, security, and ease in lieu of making direct Bitcoin investments and managing custody.
You can purchase and sell Bitcoin in a tax-advantaged retirement account with a Bitcoin IRA. Retirees can keep their standard retirement accounts and invest in new currencies like Bitcoin with a second account called a Bitcoin IRA.
THEN WHY INCLUDE IT IN YOUR PORTFOLIO?
A lot of proponents of Bitcoin refer to it as “digital gold.” Those who think Bitcoin can act as a trustworthy digital store of wealth have embraced and supported this simplified vision.
This perspective has led to the creation of Bitcoin investments that are comparable to gold products. Bitcoin products are structured similarly to gold ETFs, which contain physical gold as their underlying asset and offer exposure through funds that are traded on stock exchanges.
In recent years, the first applications for Bitcoin ETFs have been filed, and multitrillion dollar fund managers such as Fidelity and BlackRock have expressed optimism about the future of these products. The recent decision by a DC court to reject the SEC’s justification for rejecting Grayscale’s application for a bitcoin exchange fund (ETF) has been seen as a watershed moment for the sector.
Supporters of Bitcoin exchange-traded funds (ETFs) are on the lookout for any signs that well-known asset managers would approve a Bitcoin ETF on spot. Approvals of Bitcoin ETFs could come next, allowing demand to soar, depending on the SEC’s response.
USE A BITCOIN IRA TO ELIMINATE COMPLICATIONS FROM RETIREMENT PLANNING
Bitcoin’s performance in 2023 was notable because it maintained a small trading range in the face of strong external pressure, even though it was a new asset. It has been trading in a sideways fashion, bucking both direction’s breakouts and volatility in the $25,000–$31,000 zone.
Without having to understand the technical aspects of keeping your Bitcoin safe, retirees or those planning for retirement who want to add riskier assets to their portfolios, keep up with the times, and look for opportunities for future growth can include Bitcoin in their retirement investments.
They are able to open Roth or regular Bitcoin IRAs. Tax-free withdrawals are allowed from a Roth Bitcoin IRA during retirement. Growth in a standard Bitcoin IRA is tax-deferred. This is a feature that retirees in higher tax levels can use.
Why think about Bitcoin IRAs rather than just buying and storing Bitcoin yourself? Easily extendable to estate planning, Bitcoin IRAs offer a new benefit over standard retirement funds. For instance, Swan Bitcoin IRA provides insurance and enterprise-grade custody. For retirees who might not be knowledgeable about cryptocurrency security, it offers a degree of protection that is crucial.
Moreover, private investors are shielded from tax problems, legal ambiguities, and non-compliance threats by the legal framework that Bitcoin IRAs offer. Investors can rest easy knowing that all of their investments abide by current financial standards.
Bitcoin IRAs, albeit a new tool, might offer a way to keep accumulating money after retirement. They provide the framework of a recognizable and controlled environment together with the possibility for growth, diversity, and tax advantages all in one bundle. They are one approach to profit from the future potential and uncorrelated characteristics of Bitcoin.
Retirees should speak with a financial advisor before making any kind of investment to ensure that a Bitcoin IRA fits their financial objectives, risk tolerance, time horizon, and available funds. Even for those who are not interested in diving into the technical intricacies of cryptocurrency, Bitcoin IRAs present a novel, inventive, and alluring opportunity to investigate the benefits of Bitcoin investments in the brave new world of retirement planning.
This is Ivan Serrano’s guest post. The views stated are solely their own and may not represent those of Bitcoin Magazine or BTC Inc.