- Why is Everyone Talking About Bitcoin?
- What is Bitcoin?
- How Are Bitcoins Made?
- Who Created Bitcoin?
- What is the Price of Bitcoin?
- What Drives the Price of Bitcoin?
- Bitcoin User Growth
- How High Will The Price of Bitcoin Go?
- Bitcoin Market Sentiment
- Is Bitcoin the New Gold?
- Should You Invest in Bitcoin?
- 4 Reasons to Invest in Bitcoin
- 3 Reasons Not to Invest in Bitcoin
- How to Buy Bitcoin
- What is the Best Way to Buy Bitcoin?
- Can You Trade Bitcoin Futures?
- Are There Bitcoin ETFs?
- Does a Bitcoin IRA Exist?
Why is Everyone Talking About Bitcoin?
When people think of cryptocurrency, their first thought is usually Bitcoin or BTC. It burst onto the scene all the way back in 2009 and has gone from strength to strength. It is by far the most valuable cryptocurrency on the market today.
The more often it has hit the headlines the more people want to get in on the action. Despite this popularity, most people know very little about it.
5 Incredible Bitcoin Facts You Might Not Know
- Pizza was the first thing purchased with Bitcoin in 2009
- All the Bitcoins in the World are worth $200 billion+. That's more valuable than Disney
- It took 7 years for Bitcoin to go from $0-$1,000, then just 8 months to go from $1,000-$10,000
- Losing access to your Bitcoin wallet means losing your Bitcoins forever
- James Howells mistakenly threw away a hard-drive containing 7,500 Bitcoins, worth over $80 million
Data from U.S. Equity Research estimates the cryptocurrency market is expected to grow at a 32% rate by 2023.
According to RnRMarketResearch:
Growth is propelled by the benefits of compliance-free peer-to-peer transaction, cross-border remittance transfer, increase in use cases, volatility in the stock market, fluctuating monetary regulations in different countries, transparency, and immutability of the distributed ledger technology and benefits such as faster transaction and reduction in total ownership cost.
Bitcoin leads the crypto-charge, as one Wall Street analyst estimates that the digital currency’s price will climb to $25,000 in the next decade.
I believe there are hedge funds and very deep-pocketed individuals going into this now, really hundreds of millions of dollars.
Ronnie Moas, founder of Standpoint Research, in a CNBC interview.
Overall, the Bitcoin market grew by 350% in 2017, a growth rate that has some leading Wall Street financiers wondering if cryptocurrencies shouldn’t play a larger role in the global currencies market.
I’m not endorsing or rejecting Bitcoin…But I know that folks were skeptical when paper money displaced gold.
Lloyd Blankfein, chief executive officer at Goldman Sachs, who are considering setting up a Bitcoin trading operation
Financial considerations aside, Bitcoin is and will continue to be a disruptive force. Fundamentally, it solves the Byzantine Generals Problem and provides a mechanism to establish trust between otherwise unrelated parties over an untrusted network like the Internet. It might not be widely accepted as a currency yet, or even mainstream, but there may come a time when BTC is as widely used as other forms of payment.
An analogy for the current state of Bitcoin often used by enthusiasts is the early Internet. Two of the most active evangelists of Bitcoin has been the Winklevoss twins, for this reason.
American Internet entrepreneurs and Olympic rowers, the twins shot to fame after the film, The Social Network, told the story of the early days of Facebook and their involvement in its creation. Facebook paid the twins a reported $120m in cash and shares as part of a settlement to stop the twins saying Facebook founder Mark Zuckerberg stole their idea.
Since then they made a big bet on Bitcoin and have been working on building Gemini – their digital asset exchange. (A+ for the name, they're twins and they called their business Gemini.)
When email first came out I don't think there was a compelling argument to say you need to use this to make your life better. It's really up to the entrepreneurs and the technologists to build the infrastructure and applications out so that it's super easy — and dummy-proof, so to speak — to use.
Winklevoss twins in a Business Insider interview
What is Bitcoin?
Largely defined, Bitcoin is a member of the digital currency family. It is created and held electronically, with no actual physical Bitcoins, in the model of paper currencies like the U.S. dollar.
Bitcoin has no central bank, government or regulatory group backing it, it is decentralized.
It was designed to circumvent the high transaction costs associated with banks. Bitcoin was one of the first digital currencies to use peer-to-peer technology to process near-instant payments. Traditionally, if user A wants to send money to user B using a bank transfer, the bank would process the payment and take a cut. With Bitcoin, the payment is not processed by a third party but by the network. These transactions are then stored on the blockchain. This acts as a giant, shared ledger which calculates the balance of users’ wallets.
Acceptance rates of Bitcoin as a currency are increasing; however, Bitcoin at this stage shares more characteristics with commodities like gold than it does with paper currencies. In fact, the CFTC specifically labeled Bitcoin and Bitcoin Cash as commodities.
How Are Bitcoins Made?
Unlike central banks and sovereign governments, which produce currencies in a physical fashion, Bitcoin is created digitally, by a community of Bitcoin users.
The aim of bitcoin is to provide a way to exchange tokens of value online without having to rely on a central authority – it's decentralized. This expanding ledger is known as the blockchain and holds the transaction history of all bitcoins in circulation. This ledger isn't held in one location but rather is distributed across thousands of machines on the network.
This presents a problem though with determining if a transaction is valid. The solution is mining.
How Does Bitcoin Mining Work?
Approximately every 10 minutes, mining computers collect a few hundred pending bitcoin transactions known as a block and turns them into a mathematical puzzle. Miners then compete to find the solution to the puzzle and announce this to others on the network. Other miners check whether the puzzle has been correctly solved and, assuming approval is granted, this block will then be cryptographically added to the ledger and miners move on to the next block in the chain.
If a miner gets the puzzle correct, they receive Bitcoin as a reward. The amount they receive started at 50 and halves as more blocks are processed. As of November 2017, the current reward is 12.5 and it is estimated that in 910 days the reward will halve again.
The reward system ensures miners participate and validate transactions, which, in turn, ensures the security of the Bitcoin network.
It’s also important for cryptocurrency traders to know that Bitcoin is limited in capacity. By design, the Bitcoin protocol limits production to 21 million units.
Total circulation will be 21,000,000 coins. It'll be distributed to network nodes when they make blocks, with the amount cut in half every 4 years.
first 4 years: 10,500,000 coins
next 4 years: 5,250,000 coins
next 4 years: 2,625,000 coins
next 4 years: 1,312,500 coins
Who Created Bitcoin?
Bitcoin first popped up on the digital currency radar screen on August 18, 2008, when the website domain name bitcoin.org went public. Three months later, a landmark paper entitled “Bitcoin: A Peer-to-Peer Electronic Cash System,” was published by Satoshi Nakamoto, that laid out the case for Bitcoin, citing it as a peer-to-peer network that established “a system for electronic transactions without relying on trust”. In January 2009, the first Bitcoin trading network went live, along with the issuance of the first-ever Bitcoins. Early Bitcoin traders dubbed Bitcoin as the “world’s first decentralized currency.”
Who is Satoshi Nakamoto?
Satoshi Nakamoto is the creator of Bitcoin but what do we know about them? In short, not much.
Nakamoto could be male or female or more likely a group of individuals. Many have come forward claiming to be Nakamoto, but none have been able to provide categorical proof.
What we do know is that Satoshi Nakamoto holds c.1 million bitcoins which means whoever they are, they are almost certainly a billionaire.
What is the Price of Bitcoin?
You can see the price of Bitcoin below:
What Drives the Price of Bitcoin?
- Supply and demand
- Banking blockades
- Fiat currency crises
- Regulatory activity
Supply and Demand
In general, Bitcoin prices are driven by old-fashioned consumer supply and demand for the digital currency, which is exploding in growth. As stated above, there is a limited amount of Bitcoins in circulation, thus creating a tighter, smaller trading market with potentially high volatility.
Even so, consider the investment growth volume of Bitcoin on a year-to-year basis:
Bitcoin User Growth
|Year||# of users|
Given the total number of people using the Internet worldwide stands at 3.5 billion, and an estimated 20 billion devices will be connected to the Internet by 2020, the growth potential for digital currencies like Bitcoin is abundant.
In late 2010, Visa, MasterCard, Western Union and PayPal ceased processing donations to WikiLeaks. Bitcoin and other cryptocurrencies have unique value as a censorship-resistant form of currency.
Fiat Currency Crises
Political risk around national currencies is a major driver of the Bitcoin price. This is because of its hedging qualities, ensuring against price movements in a given fiat currency, allowing people to quickly move large amounts of value out of a currency.
Nervousness around Brexit in 2016 led to an increase in the price of Bitcoin. Between May '16 and July '16, the British Pound lost nearly 10% whilst over the same period the value of Bitcoin increased by over 65%. There were, of course, other contributing factors to this price rise.
When Chinese authorities declared that they were shutting down one of the largest exchanges in the country, the price of Bitcoin plummeted by 20%. China is a significant market for Bitcoin and the international market was spooked by the prospect that this would dampen demand in China.
Within a few months, the price of Bitcoin had rebounded and gained considerable ground as the market recognized that the crackdown wasn't as severe as anticipated and that most Chinese users and traders would use other exchanges.
Although Bitcoin is decentralized, some decisions about functionality and operations need to be made. These can have a significant impact on price.
Developers need more than 50% of the global network of miners to agree with changes, if and when they get the support, they create what is known as a fork.
In its broadest sense, a fork is simply a change in the blockchains protocol that the software uses to decide whether a transaction is valid or not.
Bitcoin has been “forked” twice to date; Bitcoin Cash and Bitcoin Gold
How High Will The Price of Bitcoin Go?
With Bitcoin trading volumes skyrocketing, some experts say Bitcoin prices still offer a tremendous upside.
Bitcoin has a number of famous and well-regarded supporters including the likes of:
- Sir Richard Branson – put $30m into BitPay
- Bill Gates – a keen supporter of the disruptive technology and how it can change the world long-term
- Tim Draper – billionaire venture capitalist bid for and won all 30,000 Bitcoins up for grabs in an auction run by the U.S. Marshals Service
- Tyler and Cameron Winklevoss – the founders of Gemini are believed to be the first official Bitcoin billionaires
- Peter Thiel – co-Founder of Paypal and trader in Bitcoin merchant processor, Bitpay
- John McAfee – the founder of the antivirus company that bears his name, believes Bitcoin has value beyond speculation
- Eric Schmidt – executive chairman of Google described Bitcoin as “a remarkable cryptographic achievement.”
- Al Gore – former US Vice President supports the notion that Bitcoin can replace a Government function
Bitcoin is exciting because it shows how cheap it can be. Bitcoin is better than currency in that you don’t have to be physically in the same place and, of course, for large transactions, currency can get pretty inconvenient.
Bill Gates, Founder of Microsoft
It is not a speculative investment even though it is being used as such by other people. As Bitcoin network grows the value of Bitcoin grows. As people move into Bitcoin for payments and receipts they stop using US Dollars, Euros and Chinese Yuan which in the long-term devalues these currencies.
John McAfee, Founder of anti-virus company McAfee Associates
Consider these price estimates from Wall Street experts: Tom Lee, co-founder of FundStrat Global Advisors estimates that the bitcoin price could reach $25,000 by 2022 and Morgan Creek Hedge Capital Management founder, Mark Yusko, says there is a 75% chance that Bitcoin prices will reach $500,000 in the next 20 years, with the possibility of reaching $1 million in price.
Lee says price growth is not only growing due to popular demand, but it’s also boosted by larger holdings from institutional traders, which are rising significantly.
That being said, MANY are skeptical of Bitcoin even maintaining its current price let alone reaching the dizzy heights of $500k. Of course, there are experts who sit on the other side of the fence on Bitcoin and believe we are in the midst of an asset bubble.
Stephen Roach, one of Wall Street's most revered economists and former Chief Economist at Morgan Stanley, described Bitcoin as a dangerous bubble that's bound to burst.
Is Bitcoin a Bubble?
We believe Bitcoin is a promising technological advancement that long term has the potential to truly disrupt the financial services industry.
That being said, the skyrocketing prices and wild speculation bear all the hallmarks of an asset bubble.
It could be argued that the current price is not supported by an underlying demand for Bitcoin itself but rather a result of a finite supply of Bitcoin and traders flocking to the cryptocurrency in a bid to profit from short-term speculation and/or an almost blind faith in what the technology could become.
Bitcoin Market Sentiment
We’ve gathered data from 75+ leading exchanges to determine the general feeling in the Bitcoin market. Its calculation is simple; using data from the exchanges listed below, we gather buy and sell volumes for a given time period and weight this against the total transaction volumes.
Source – CryptoCompare Public API.
Is Bitcoin the New Gold?
Bitcoin could certainly be the new gold.
You might be wondering why we're covering Bitcoin and other cryptocurrencies here at Commodity.com – a site all about commodities.
At this point, cryptocurrencies like Bitcoin are more akin to a commodity than a currency. They are an emerging asset class which can act as a store of value, can be traded on an exchange and geopolitical issues have an impact on their price. In fact, the CFTC specifically labeled Bitcoin and Bitcoin Cash as commodities.
It remains to be seen whether Bitcoin can be a reliable vehicle for wealth storage in the long term. Will it ever displace gold as the primary way to store wealth? Probably not. But can it become a digital equivalent of gold? Quite possibly.
Should You Invest in Bitcoin?
Like any opportunity, there are pros and cons to Bitcoin – here’s a snapshot of the key issues on each side of the equation:
4 Reasons to Invest in Bitcoin
- Disruptive technology
- Rapid growth
Bitcoin has the potential to replace current payment systems. There is no question that it can make international transactions easier and cheaper than the current alternatives such as banks or PayPal. Arguably, though, the most exciting thing about Bitcoin isn't actually Bitcoin, instead, this might be the start of the next big thing.
The Holy Grail for any financial investment is a big potential upside, and Bitcoin has that in abundance. If you’d purchased a $100 worth of Bitcoin in early 2010, your investment would be worth $72.9 million in late 2017. Many financial experts call for continued price growth for Bitcoin going forward.
Bitcoin is the most liquid of all the cryptocurrencies, with continued growth, increasing credibility (example: Japan recently began recognizing Bitcoin as legal tender and Fidelity Investments has listed the digital currency on its web site, tracking its trading value just like it does the S&P 500.) As Bitcoin trading volume grows, and as it gains more legitimacy, expect Bitcoin liquidity to expand exponentially.
Structurally and technologically, Bitcoin runs on blockchain technology, i.e., a new and different method of storing data using a distributed (not centralized) financial ledger system. A big part of that system is that traders largely remain anonymous and thus are better protected against breaches and hacks. Nobody is saying Bitcoin is hack-proof, but its accounts are much harder to crack than current, traditionally centralized investment platforms.
3 Reasons Not to Invest in Bitcoin
When a shock pushes enough people towards the exit at the same time, that is when people will realize that this is the case, and there are not enough dollars in the Bitcoin economy to redeem their balances.”…”A loss in confidence in one platform would lead to loss of confidence in others.[…]And that’s what the beginning of a liquidity crisis looks like. This one will be glorious.
Preston Byrne, Former COO of Monax and Fellow of Adam Smith Institute
- Bitcoin isn’t a physically held asset
- Lack of stability
- Anonymity an issue
Bitcoin Isn’t a Physically Held Asset
Unlike stocks or bonds, Bitcoin is not “real”. Instead, Bitcoin is a mathematical algorithm. In that regard, Bitcoin is more ethereal in nature, and its value rests on a technological platform that relies on mathematics to assess value, and any Bitcoin trader is going to have to trust that platform.
Lack of Stability
As a digitally constructed investment asset that has no controlling central authority and no regulatory body overseeing Bitcoin commerce (as, for instance, the U.S. Securities and Exchange Commission regulates the U.S. stock market), Bitcoin can and has experienced strong volatility from time to time. Put another way, if Bitcoin can rise in value by 100% in a given time period, it can fall by that amount, or more, in another time period. Investors who aren’t comfortable with high volatility risk should take that equation into consideration before investing in Bitcoin.
Anonymity an Issue
Since Bitcoin largely exists as an anonymously-traded investment, traders won’t know who they’re transacting with when dealing in the Bitcoin marketplace. And once a transaction is completed, there is no “undoing” the transaction, and you can’t contact the contra-trading partner if you suspect any illegal activity.
How to Buy Bitcoin
Some commentators like to compare the cryptocurrency market to the Wild West, an untamed frontier where anything goes. They’re not too far off.
Your first instinct is probably to use an exchange like Bitfinex. This involves buying coins with fiat currency and storing them in a virtual wallet. This is the approach taken by many users but it carries a number of risks.
There are a number of exchanges to choose from and it can be a little overwhelming to choose the right one. Here are two options we recommend if you are set on buying bitcoin:
If you want to get Bitcoin quickly and anonymously your best choice is probably LocalBitcoins. This exchange lets you buy Bitcoin in your local currency and is available all over the world. Unlike many exchanges, it is possible to transact without providing your ID. Unfortunately, this leaves you open to scams. Some users attempt to take advantage of new traders. You should vet every user before you agree to a trade. If you take steps to protect yourself from scams then LocalBitcoins is easy to use and their low fee of 1% makes it a good choice to buy Bitcoins.
If you are willing to hand over your ID another choice is Coinbase. They offer an exchange, a wallet and a user-friendly interface. You can buy Bitcoin using your credit/debit card or a bank account. The fees are competitive with 3.99% for a credit/debit card and 1.49% for most kinds of bank transfers. With Coinbase, there is less risk of being burned by a bad trade. This safety comes in exchange for your anonymity so coinbase is unsuitable for privacy-concerned traders.
Managing your own Bitcoin can be a challenge. You might fall prey to a phishing scam and have your coins stolen. You could misplace your access codes and leave your coins forever trapped in a wallet you cannot access. If you use a wallet on your smartphone, if your phone were stolen then your Bitcoins could be gone as well.
There are also risks completely outside of your control. You are entirely reliant on the competence of your exchange and sometimes things can go horribly wrong. Nothing demonstrates this better than MtGox.
In 2013, MtGox was the largest Bitcoin exchange, controlling 70% of the market. Everything was going well until March of 2013 when Fincen seized MtGox’s accounts. This prevented users from withdrawing USD from the exchange. Things got even worse when the exchange was hacked. The attackers stole around $500 million bitcoins.
Many MtGox users lost everything.
Sadly, modern exchanges don’t seem to have learned from the MtGox disaster. Bitfinex was hit by a hack in August 2017. The attackers made off with around $72 million of cryptocurrency. The hackers literally emptied wallets at random which would have meant that some users lost everything. To offset the loss Bitfinex took the controversial decision to reduce everyone’s account balance by 37%.
Many traders find this level of non-market risk to be unacceptable. The question is, how do you get Bitcoin if you can’t trust an exchange?
What is the Best Way to Buy Bitcoin?
Our preferred option is to trade Contracts for Difference (CFDs) using a regulated broker.
A CFD is a contract between you and the broker. Instead of buying Bitcoin directly you are taking a short or buy position. You will then make or lose money depending on the direction that the market moves in. This allows you to take advantage of shifts in the market without actually owning any Bitcoin.
In short, you can profit from Bitcoin without ever actually owning one.
There are a lot of brokers out there and it can be hard to figure out which is the best to choose. The first rule is to always make sure you go through a regulated broker. Regulated brokers have to comply with strict standards, designed to protect your money. You should take into consideration any commissions, overnight fees and any risk management tools. We would also suggest you take advantage of any demos before you commit to a platform.
To save you some time, we compared dozens of brokers on 10 key factors such as reputation, safety, fees and account requirements (see full list). Based on our extensive research, Plus500 stands out as our choice to trade Bitcoin CFDs. (CFD Service. 80.6% lose money.)
Plus500 is a leading broker for trading Bitcoin CFDs.
Plus500 subsidiaries are individually regulated by the following agencies; Financial Conduct Authority (FCA), Cyprus Securities Exchange (CySEC), Australian Securities and Investments Commission (ASIC).
See the table below for exactly which regulator covers you in your country and what protection is offered.
|Regulator||Countries Covered||Protection Offered||Additional Protection Offered|
|Financial Conduct Authority (FCA)||UK, Ireland and Germany||All client funds are held in a segregated client bank account||Financial Services Compensation Scheme (FSCS) may cover up to £50,000 if Plus500 fails.|
|Cyprus Securities Exchange (CySEC)||Andorra, Argentina, Austria, Bahrain, Belgium, Bulgaria, Chile, Croatia, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Gibraltar, Greece, Hungary, Iceland, Isle of Man, Israel, Italy, Kuwait, Latvia, Liechenstein, Lithuania, Luxembourg, Malaysia, Malta, Mexico, Monaco, The Netherlands, Norway, Oman, Poland, Portugal, Qatar, Romania, Saudi Arabia, Slovakia, Slovenia, Spain, South Africa, Sweden, Switzerland, United Arab Emirates and Uruguay.||All client funds are held in a segregated client bank account|
|Australian Securities & Investments Commission (ASIC)||Australia, New Zealand and South Africa||All client funds are held in a segregated client bank account|
How much does it cost to trade Bitcoin CFDs?
Plus500 is an excellent choice because they don’t charge any commission on trades. Instead, you are only charged on the spread (spreads are variable). Be aware that there are also premiums for holding a position overnight and you can be charged an inactivity fee if you don’t use your account for 3 months.
Plus500 also comes with a toolkit of risk management tools. For example, you have the option to set a guaranteed “close at loss” or “close at profit” limit. These tools give you a lot of control over your CFDs and help remove some of the micromanagement.
One of the most useful features is the trailing stop. This allows you to set a stop position that grows with the market. If the value of Bitcoin increases then so will the value of your stop position. This allows you to enjoy an uptick in the market without manually monitoring and updating your stop position.
Plus500 also comes with other useful features. It is localized in more than 50 countries and 31 different languages. There is also a range of mobile apps and tools to help you trade when you’re away from your computer.
Overall, Plus500 is an excellent choice for new and seasoned traders alike. It has an intuitive platform and excellent risk management tools that will help you make the most out of your trades.
This is an example trade, not a recommendation.
- Convenient access to Bitcoin CFD trading.
- Easy sign-up, compared to the cumbersome process of enlisting in a Bitcoin trading exchange.
- Guaranteed execution at a fixed price, without having to wait for another Bitcoin trader to agree to a buy or a sell transaction.
- Allowance for credit or debit cards, a service generally not allowed on cryptocurrency trading exchanges.
- Allowance to trade 10 or more cryptocurrency CFDs, including Bitcoin, Ethereum, and Litecoin.
- Free real-time quotes and 24/7 trading availability
- Intuitive charting tools
Important: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. Between 74-89% of retail trader accounts lose money when trading CFDs. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Can You Trade Bitcoin Futures?
In December 2017, the CME group, one of the largest financial exchange organizations in the world, allowed traders to exchange the first Bitcoin futures contracts. This was considered a significant milestone for the cryptocurrency and resulted in a spike in Bitcoin’s value.
Bitcoin futures trading works on the same principle as any other form of futures trading. Rather than directly buying or selling the asset, you are instead trading in a futures contract. In essence, this means that rather than buying and selling Bitcoin you are agreeing to purchase an asset at a fixed price at a specified point in the future.
When the trader purchases their contract they are essentially betting on the future value of Bitcoin with either a short position (betting that Bitcoin will drop in value) or a long position (betting that it will increase in value).
A contract is composed of a set number of Bitcoin, in the case of CME, this is five. In each contract, there is a “tick” or a minimum level of fluctuation in price. If this was set at $25 then the value of Bitcoin would have to raise or fall by $25 before the trader would make or lose any money.
Cryptocurrency futures are a fairly new instrument and their viability is somewhat limited by the volatility that defines the cryptocurrency market.
Are There Bitcoin ETFs?
An exchange-traded fund, or ETF, is an investment fund that trades on stock exchanges as though they were ordinary stocks. ETFs are a type of fund that holds a collection of assets and then divide ownership of these assets into shares. An ETF operates in the same way as a stock so it can be bought and sold easily. Due to their low barrier to entry, competitive costs and tax efficiency, exchange-traded funds have proven to be a popular investment choice.
The success of Bitcoin has led to the creation of exchange-traded funds with a focus on cryptocurrency. These kind of funds are interesting because they allow traders to benefit from price increases in Bitcoin without having to go through the hassle of purchasing and managing the coins themselves.
Some ETFs take an approach similar to an Index Fund and attempt to spread out their choice of assets. Other Exchange traded funds chose to focus on holding a single asset and peg their value against that. The Bitcoin Investment Fund (GBTC) takes this approach, focusing its assets purely on Bitcoin. This means it is slightly easier for traders to track the underlying value of the asset, however, GBTC will be vulnerable to flash crashes without any hedging assets.
ETFs are an option for traders who are concerned about the complexity involved with using an exchange and simply want to profit from any price increases from Bitcoin. They also have a lower barrier to entry than many mutual funds as to invest you technically need to only buy a single share, rather than meet a minimum deposit.
That being said, ETFs based on a single asset can be risky because there are no hedging assets to help protect against sudden drops in value and they tend to run at a slight premium when compared to holding Bitcoin yourself.
Does a Bitcoin IRA Exist?
Technically, there is no such thing as a Bitcoin IRA. It’s a marketing term, just as there is no such thing as a “gold IRA” or a “Real Estate IRA”. That being said, it is possible to use an IRA to invest in cryptocurrencies like Bitcoin.
IRAs come in two different varieties:
- IRA – This is a standard IRA. They are generally companies offering a very narrow field of investment. This could be anything from gold to property or even cryptocurrency. These IRAs are captive by nature and force their trader to direct their capital into a narrow range of assets offered by the company itself.
- Self-Directed IRA – This is a special class of IRA. It is held with a custodian that allows traders to direct their capital into any asset class that the law allows. This kind of IRA is not only capable of holding traditional assets but also a variety of alternative assets such as gold or even Bitcoin.
The upshot of all this is that a Bitcoin IRA does not differ significantly from a traditional IRA. You can choose to either do this through a company that focuses entirely on cryptocurrencies or in a more general self-directed IRA that allows you to utilize a variety of assets.
BitcoinIRA has been offering cryptocurrency IRAs since its foundation in 2015. While it initially only offered Bitcoin as a choice, it now offers a range of alternative cryptocurrencies. It's grown significantly over the last few years and is now one of the largest providers of cryptocurrency-focused IRAs. Bitcoin IRA act as an account designated representative on behalf of the IRA custodian, Kingdom Trust. Essentially, this means that you will be doing business with Kingdom Trust, not Bitcoin IRA.
Bitcoin IRA and Kingdom Trust are IRS compliant entities that are able to operate licensed IRAs. Kingdom Trust specializes in helping traders manage self-directed IRAs that contain alternative assets. They also help ensure that any self-directed IRA is IRS compliant.
Initially, Bitcoin IRA only offered Bitcoin as an investment option. In April 2017, Ethereum was added as a potential asset. As of August 2017, traders are able to choose from Bitcoin, Bitcoin Cash, Ethereum, Ethereum Classic and Ripple. Bitcoin IRA sources its cryptocurrency through its liquidity partner, Genesis Trading.
When you first sign up you are given the option to build your own portfolio. You can choose a popular, balanced or custom setup. These aren’t final but they help give your advisor an idea of what your priorities are.
This feature is theoretically useful because it enables you to balance your crypto portfolio by including currencies that won’t necessarily move up or down in tandem.
The mix on offer by Bitcoin IRA includes the “big four” cryptocurrencies as well as their main alternatives. Sadly, there are some coins we’d like to see that aren’t currently included, most notably Dash and Monero. That being said, the selection is likely to expand in the future and should satisfy the majority of traders in its current form.
On top of offering a number of different cryptocurrencies, the custodian Kingdom Trust also offers traders the ability to diversify their IRA with other assets, such as precious metals, without creating a new account.
How does BitcoinIRA.com protect your investment?
The security used by Bitcoin IRA is powered by BitGo. BitGo is one of the leaders in multi-signature security and has a strong track record of protecting digital assets like Bitcoin. BitGO specializes in helping businesses facilitate cryptocurrency transactions and are basically there to help Bitcoin IRA protect your investment.
Bitcoin IRA uses BtiGo’s offline vault which utilizes multi-signature security. This means that the key or signature is held by three separate parties. One is held by BitGo itself, the other is held by the Bitcoin IRA custodian, Kingdom Trust, and the last is held by a backup key provider, keyturn.al. The wallet cannot be opened without the use of at least two of these signatures.
As an extra layer of security, Bitcoin IRA also implements ID and voice verification. When you perform live trades the service will require you to confirm your ID. This is designed to make it almost impossible to fraudulently withdraw cryptocurrency.
Your investment is also protected by Bitcoin IRA’s $1 million consumer protection insurance, provided by Lloyds of London. This is designed to protect consumers from any internal fraud or theft. This covers up to $250,000 per account.
Ultimately, though, all the security in the world won't help you if the digital currencies you are holding become worthless so please remember that you could lose all the capital you invest. We strongly recommend you take professional financial advice before considering a Bitcoin IRA.