Many Americans have never considered adding cryptocurrencies to their Individual Retirement Account (IRA) because it is a relatively new idea and they are unaware of the numerous diversification benefits it can provide.
Retirement investors are increasingly turning to alternative assets like cryptocurrencies, such as Bitcoin and Ethereum, in their IRAs to protect their savings from market risks and volatility. While Gold IRAs and Silver IRAs have traditionally been common avenues for safeguarding nest eggs with tangible assets, IRAs containing digital currencies are now gaining popularity. With inflation and interest rates at 5.5% in today’s era, this shift towards cryptocurrencies reflects a desire to hedge against systemic market risks and stock market volatility.
Despite being newer in the industry, Crypto IRAs provide similar qualities to Precious Metals IRAs, yet offer greater potential advantages in both the long-term and short-term.
Bank of America predicts that digital currencies may reach a market value exceeding $2 trillion, attracting more than 200 million users and leading the way in revolutionizing global finance. Crypto enables cross-border financial transactions that are borderless, efficient, and effortless, offering qualities similar to that of “digital gold.” Michael Saylor, the CEO of MicroStrategy, firmly believes that digital gold will undoubtedly replace traditional gold in the coming decade.
Bitcoin IRAs are the preferred option for crypto IRA enthusiasts because they are more established. Being the biggest and most well-established cryptocurrency, they provide investors with exposure to digital assets in their retirement accounts, while also offering a certain level of stability and potential long-term growth. These IRAs have been available for around seven years and were first introduced in 2016 by a company aptly named BitcoinIRA.
Moreover, Bitcoin is experiencing a surge in mainstream acceptance, as demonstrated by Colorado’s recent embrace of cryptocurrency for tax settlements, marking the first instance of a U.S. state accepting such payments. Similarly, abroad, central banks like the European Central Bank are preparing to initiate pilot initiatives for their own digital currencies that function similarly to Bitcoin. Encouragingly, a total of 11 central banks have already introduced their own digital currencies.
Even the biggest financial institutions are embracing cryptocurrencies, indicating their potential value.
In addition, Bitcoin performed better than gold and the stock market from 2019 to 2021, and it is currently projected to achieve the same performance in 2023. According to a CNBC report, Bitcoin IRAs gained significant popularity in 2021 due to their ability to generate long-term wealth and enjoy the tax advantages associated with IRA accounts.
Although Bitcoin is the primary cryptocurrency in Bitcoin IRA accounts, there are also several other cryptocurrencies and altcoins present in these accounts.
In recent times, a considerable number of knowledgeable investors have transferred their Crypto IRA accounts to Ethereum IRAs. While Bitcoin IRAs have gained more recognition thus far, Ethereum offers investors a fresh opportunity to explore a distinct aspect of the crypto market and its long-term prospects.
What is Ethereum, and How Does it Differ From Bitcoin?
It is inevitable to compare Bitcoin and Ethereum, especially regarding IRA accounts. Bitcoin remains the leading and most established cryptocurrency, while Ethereum has quickly become the second-largest cryptocurrency in terms of market capitalization in recent years. In Q3 2023, Ethereum has a token price of US$1,848 and a total market volume of $6.9 billion.
Over the past few years, Ethereum has made considerable progress and is now the second-largest cryptocurrency based on market capitalization.
Bitcoin (BTC) and Ethereum (ETH) share inherent similarities as investable cryptocurrencies. Both are decentralized, deregulated, and exist on the blockchain. They are stored in digital wallets and operate through distributed ledgers and cryptography, ensuring resistance to alteration, hacking, or control by any central authority.
Apart from that, there are not many similarities between the two.
Primary Purposes
In 2009, Bitcoin was invented by an anonymous computer programmer named Satoshi Nakomoto, making it the first cryptocurrency in the world. This was in response to the financial crisis recession, which called for new financial technologies to avoid future crises. Its aim was to function as an electronic P2P currency system, medium of exchange, and a store of value similar to digital gold, challenging traditional fiat currencies. Whether or not it has successfully achieved these objectives remains a topic of public discussion.
On the other hand, Ethereum is the second most popular cryptocurrency and was designed with a different intention. It allows developers to earn money from smart contracts, develop decentralized apps (“dApps”), and expand upon existing programming languages. Ethereum was co-founded by Vitalik Buterin, a young prodigy in mathematics and computer science, in 2013 to facilitate unchangeable, automated contracts. It is likely that Ethereum has fulfilled its original purpose more effectively than Bitcoin. Since its introduction, it has sparked a revolution in blockchain technology, resulting in the formation of numerous cryptocurrencies that operate on its platform.
The Ethereum blockchain has been the foundation for many rapidly growing sectors in the crypto ecosystem, including Decentralized Finance (DeFi), exchanges, NFTs, crypto gaming, and others. USA Today reports that the projected price target for Ethereum in 2023 is approximately $2,900 per ETH token.
Bitcoin and Ethereum are not direct competitors, but rather coexist in the same universe. However, the Ethereum ecosystem is experiencing exponential growth, particularly with the transition to Ethereum 2.0. Ethereum is open source, decentralized, and provides smart contracts, making it programmable. Developers have found Ethereum to be more revolutionary than Bitcoin in terms of building fully customizable applications in the real world.
From 2020 to 2022, Ethereum’s value surpassed that of Bitcoin, which may explain why it skyrocketed. Nonetheless, starting from mid-2022, both Bitcoin and Ethereum have experienced comparable growth patterns.
“Digital Gold vs. Digital Silver”
Gold and silver are precious metals that have a natural competition, particularly in IRA accounts. Gold is considered a store of value and protection against inflation because of its limited supply and stability. Similarly, silver possesses these same characteristics but also offers a wider range of industrial uses, affordability, and liquidity. Russ Koesterich of BlackRock highlights that silver is used in more industrial applications than gold, including electronic devices, electrical systems, and solar panels. Silver also plays a vital role in the growing EV industry, which is projected to be worth $46 trillion by 2050, particularly in regards to the electric engine, battery pack, and battery management system. According to Morgan Stanley, silver is significantly cheaper than gold and is more accessible to small-scale retail investors. Furthermore, silver is easily tradable as it is liquid, widely available, and adaptable.
Just like Bitcoin and Ethereum, gold and silver hold the top two positions in terms of market value among precious metals.
Bitcoin, which was the initial cryptocurrency, is frequently likened to digital gold due to its status as the first, as well as its considerable market capitalization and restricted availability, rendering it a digital asset of worth. Comparatively, Ethereum, the second-largest cryptocurrency, is often compared to digital silver. Similar to silver’s versatility in serving diverse functions across numerous applications, Ethereum fulfills varied purposes and is relatively more inexpensive and more easily converted into cash compared to Bitcoin.
Transactions
Bitcoin is cheaper than Ethereum when it comes to transaction fees. Bitcoin transactions include notes and messages encoded within data fields, whereas Ethereum transactions include executable code for creating smart contracts and applications on top of them.
Transaction fees via TheBlock are sponsored by IronMonk Solutions.
In 2021, Ethereum experienced a “hard fork” to upgrade its underlying blockchain system in order to make transaction fees less volatile and improve their calculation. As a result, in 2023, after the successful fork, the price of the Ethereum token immediately surged by +3.9%.
Bitcoin, having experienced numerous hard fork events in the past, is on track to undergo another one within the next few years. Consequently, a significant surge in prices could potentially occur.
When it comes to Ethereum, the saying “you get what you pay for” holds true. Ethereum outperforms Bitcoin in terms of transaction speed. The time required for transactions to be confirmed, also known as block time, is approximately 10 minutes for Bitcoin and just 15 seconds for Ethereum. In terms of transaction throughput, Bitcoin can only handle around 7 transactions per second, whereas Ethereum can handle up to 30 transactions per second.
Many analysts and industry observers agree that Ethereum is a faster and more practical peer-to-peer payment system compared to Bitcoin.
Energy Consumption/Staking
Both Bitcoin and Ethereum utilize the proof of work (PoW) protocol, which serves as a mechanism for networks to validate information stored on their blockchains. This protocol is widely employed in cryptocurrency mining to generate new tokens.
Proof of stake (PoS) technology is less energy-intensive compared to proof of work protocols, which suffer from congestion and lag times. Ethereum intends to transition to PoS while Bitcoin will continue to utilize PoW. PoS eliminates the need for computational power by introducing staking and replaces miners with validators.
At present, the energy-intensive task of performing Bitcoin-related work is carried out by machines, which largely rely on fossil fuels for their energy consumption.
Bitcoin Energy Consumption Worldwide, 2017 to 2023 (Source: Statista )
Bitcoin has a carbon footprint equivalent to the Czech Republic on an annual basis. Its power consumption is similar to that of Thailand, and its generation of small IT equipment waste is on the same level as the Netherlands.
In addition, it should be noted that a single Bitcoin transaction alone consumes a significant amount of energy and has a negative environmental impact. This single transaction is equal to the carbon footprint generated by 2,645,939 VISA transactions or the equivalent of 198,972 hours spent watching YouTube videos. Furthermore, it wastes energy equivalent to that used by an average U.S. household over a period of approximately 73.36 days, and it also wastes electricity comparable to the weight of 2.18 iPhones 12 or 0.73 iPads. Overall, it is undeniable that Bitcoin is highly inefficient and poses a potential threat to the environment.
Contrarily, after undergoing several hard forks to reduce power intensity, Ethereum is claimed to have an energy consumption level that is almost unrecognizable. With its new Proof-of-Stake system, Ethereum requires fewer energy resources compared to PayPal, Netflix, and Airbnb.
How to Add Ethereum to Your IRA Account
After discussing the distinctions between Ethereum and Bitcoin, let’s explore the process of including Ethereum in your IRA account. As the advantages of Ethereum become increasingly recognized by individuals, particularly given the ongoing development and expansion of DeFi, NFTs, and the blockchain sector, more people are recognizing the potential long-term benefits of Ethereum and choosing to incorporate it into their IRA accounts.
Given that traditional brokerage accounts generally do not offer support for crypto IRAs, it is crucial to comprehend the entire process from beginning to end, particularly since Bitcoin IRAs are relatively new, and Ethereum IRAs are even more recent.
The process is easy and only consists of 4 steps.
Step 1: Choose the type of IRA account you want
Ethereum IRA accounts, similar to Bitcoin IRAs and Gold and Silver IRAs, are accounts that are self-managed or self-directed. You, as the account holder, have complete control over choosing the assets within your IRA account.
You have the option to choose between two types of self-directed retirement accounts if you think step by step.
Roth Ethereum IRA
An after-tax retirement savings account that functions in the same way as a Roth IRA.
Contributions do not qualify for an upfront tax deduction.
There are no requirements to pay taxes at a later stage when you retire and commence taking distributions.
Traditional Ethereum IRA
An account for saving money for retirement that can postpone the payment of taxes.
Tax will not be imposed on contributions and gains.
Contributions that can usually be deducted from taxes.
In 2023, the annual contribution limits are $6,500 for individuals under the age of 50, and $7,500 for individuals who are 50 years old or above. Starting from 2024, these limits will increase by an additional $500 for both age groups.
During retirement, it is necessary to pay taxes on distributions.
In addition to taking into account the type of account, you must also take into consideration storage and exchange solutions. Storage solutions are responsible for digitally storing and encrypting your cryptocurrency assets in order to protect them from theft or loss. On the other hand, exchange solutions enable real-time trading of cryptocurrencies.
Step 2: Use a reputable Ethereum IRA company to set up your account
Although Ethereum IRA accounts are self-managed, it is crucial to collaborate with a reliable third-party custodian to assist in the establishment of your account. Nonetheless, an esteemed custodian offers additional services such as providing FDIC insurance and technical support, ensuring complete IRS compliance, and managing all storage and exchange solutions.
When selecting a provider, it is important to use caution and opt for one that offers all the necessary services. It is equally crucial that they possess an in-depth knowledge of both cryptocurrency and retirement accounts. Above all, they must possess an excellent reputation from various sources and a solid history of performance.
Step 3: Fund your account
If you are interested in starting an Ethereum IRA, there are three different options available for funding your IRA account: direct bank transfer, IRA rollover, or direct IRA-to-IRA transfer. It is possible to receive assistance from a reputable IRA custodian for any of these methods.
Custodians play a significant role in facilitating rollovers, which involve transferring funds from an existing IRA or employer-sponsored account (excluding limitations) to a new Ethereum IRA.
Step 4: Choose your assets
There is no need to restrict yourself to owning only Ethereum just because it is called an Ethereum IRA. By collaborating with your IRA provider, you can choose a collection of cryptocurrency assets to hold in your retirement account and store them in secure digital wallets.
Top Bitcoin IRAs
Here are 5 of the best options available in the industry for your Bitcoin IRA, considering your knowledge of what to anticipate.
1. Bitcoin IRA – Best Reputation
Bitcoin IRA provides a user-friendly service and comprehensive solutions for individuals looking to open a secure Bitcoin IRA or one involving various other major cryptocurrencies. The company offers transparent self-directed IRAs supported by BitGO Trust, ensuring secure on-chain trading of digital assets, which are fully insured for up to $100 million, guaranteeing complete peace of mind.
An additional noteworthy aspect of Bitcoin IRA is the convenience of trading and accessing the platform. It is accessible 24/7 and can be accessed from both mobile devices and computers, offering live trading possibilities.
At Bitcoin IRA, your fees are consolidated into one, allowing for convenient discussions with their registration team during sign-up. This eliminates any recurring fees and offers two excellent account options, one of which requires only a minimum deposit of $100 and the same monthly contribution amount.
2. iTrust Capital – Lowest Trading Fees
When it comes to setting up your self-directed Bitcoin IRA, iTrust Capital is renowned for being one of the most dependable services in the industry. They ensure utmost transparency throughout the entire set-up process, offering assistance at every step and providing a user-friendly trading platform that simplifies Bitcoin purchase, trading, and transfer to your IRA.
You have the option to choose from seven major cryptocurrencies, in addition to gold or silver, to add to your account. iTrust offers step-by-step assistance to help you begin, along with a wide variety of educational materials to support you in the long run. Furthermore, iTrust ensures a smooth process for transfers and reporting obligations.
Once you reach retirement, you will have the option to withdraw your contributions in cash or access the investments you have made. The minimum amount required to open an account is $2,500, with a 1% fee for trading crypto, $50 for gold, and $2.50 for silver. Additionally, there is a monthly maintenance fee of $29.95.
3. BitIRA
When looking for a secure place to hold your Bitcoin IRA, BitIRA is an excellent choice. This is because the company not only offers secure cold storage services, but they also ensure the safety of your investment until your retirement. In addition to this exceptional security support, BitIRA is a top choice for major cryptocurrencies like Bitcoin, Ethereum, Litecoin, and others.
In addition to its premium level security, BitIRA excels in other aspects as well. They provide a top-notch education section to keep you informed about your account and trading. They also offer expert customer support. Furthermore, BitIRA offers $3.75 million FDIC insurance on cash holdings and dollar-for-dollar insurance on crypto holdings, which is a significant advantage.
To summarize, you can be completely confident in the security of the company and its traditional or Roth IRA account options. The minimum trading amount is $5,000 and fees are assessed on a per-account basis, necessitating communication with the BitIRA team for further details.
4. Coin IRA
Coin IRA, being one of the most experienced in the field, has a proven track record in providing Bitcoin and other cryptocurrency IRAs. Operating for over ten years, they have consistently received positive reviews within the industry.
In addition, they provide a high level of security by offering cold storage to ensure the long-term safety of your holdings. With over ten years of industry experience, the Coin IRA support team stands out as one of the most knowledgeable in the Bitcoin IRA field. IRA investors are particularly attracted to the company because they offer a noteworthy bonus: up to 5% cash back on eligible purchases exceeding $50,000, which can accumulate significantly over time.
To begin with this skilled player, you must have a minimum investment of $25,000. However, anticipate a range of competitive annual fees, encompassing everything for your Bitcoin IRA, to amount to approximately $175 to $225.
5. Alto IRA
Alto, a custodian for self-directed IRAs, aims to offer average Americans the same investment opportunities that have traditionally been favored by wealthy and institutional investors. By using an Alto IRA or CryptoIRA, individuals have the ability to expand their investment portfolio beyond the public markets and access a wide variety of cryptocurrencies for their IRA, including over 200 options such as BTC, ETH, ADA, and MATIC.
Coinbase holds both coins and tokens in institutional-grade hot and cold storage, maintaining a 1:1 ratio. A third-party custodian is responsible for this storage, and they also hold a $320 million insurance policy to safeguard against cybercrime and fraud.
Cash is stored in FDIC-insured accounts without a specific direction. The advantage is that transparency is emphasized, allowing you to invest in cryptocurrency without being subjected to hidden fees and high minimums that are often required by many crypto Individual Retirement Accounts (IRAs).
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