The Next Frontier: Digital Assets for Retirement

The conversation about crypto should move beyond its long-term legitimacy as an investable asset class to a new debate: Do cryptocurrencies belong in retirement accounts – and how?

AccessTimeIconFeb 24, 2022 at 1:50 p.m. UTC
Updated Apr 10, 2024 at 2:28 a.m. UTC

Is bitcoin retirement gold or retirement kryptonite?

After a decade of being treated as risky investments by much of the financial industry, cryptocurrencies have finally achieved broad acceptance. That’s right – BlackRock, the biggest and most institutional of investors, is reportedly planning a cryptocurrency trading offering of its own.

This article originally appeared in Crypto for Advisors, CoinDesk’s weekly newsletter defining crypto, digital assets and the future of finance. Sign up here to receive it in your inbox every Thursday.

But the embrace of digital assets by traditional finance doesn’t end the arguments about their value, utility and staying power; it simply moves the goalposts.

One question still up for debate is whether crypto – and digital assets in general – belong in retirement accounts. To answer that question, we should first ask if digital assets are right for retirement.

An inevitability in retirement accounts?

Eric Satz, founder and CEO of AltoIRA, a digital self-directed IRA custodian that offers a crypto individual retirement account, said that there is $35 trillion in retirement accounts today, but less than 2% of that total is invested in alternative assets.

“If you compare that to the 10% number on the low end for high-net-worth and ultra-high-net-worth investors, to 80% for the Yale endowments of the world and pension funds, the everyday investor is missing out,” Satz said. “I don’t think it’s any surprise that we really are headed for a retirement crisis. It will only get worse if we don’t enable people to access high-performing opportunities at an affordable price.”

Crypto assets are probably going to end up in those accounts anyway, whether the financial industry likes it or not. Crypto IRAs are just the first of what will likely be many options for digital asset investors to keep their holdings in a tax-exempt or tax-free vehicle.

For one thing, a lot of people already hold crypto for retirement. In a January survey, retirement consultancy Capitalize found that over one-third of employees already have crypto holdings of some kind intended to fund their retirement.

Satz said that is happening because people are tired of retirement accounts that offer repetitive investment offerings.

“With the proliferation of mutual funds, indexes and ETFs (exchange-traded funds), all of that entire passive investing industry is comprised of some sub-segment of the same 400 meaningful public companies,” Satz said. “Once you get to a certain number of funds in a portfolio, adding more doesn’t get you more diversification, it only gets you another mutual fund.”

For true diversification that may offer less volatility and better risk-adjusted returns, people should be able to invest in the full gamut of alternative assets, Satz said. That’s why AltoIRA offers access to a range of different alternative assets in addition to cryptocurrencies through a partnership with Coinbase.

Attractive assets

A majority of people are going to hold cryptocurrencies as investments some day, Satz said, and a majority of people will see their potential value in a retirement account. These assets, by design, have some desirable characteristics: The built-in scarcity of bitcoin means that it will eventually be a bulwark against currency degradation, he noted.

“With institutions and more advised assets entering the space, volatility will decline,” said David Abner, global head of business development at Gemini, a crypto exchange and custodian. “We’ll see more stability. Recently, bitcoin set a new baseline around $40,000 and it’s now bounced above it. What I see is that more and more investors are positioned with a long-term outlook. We see lower volumes on sales during downdrafts over time, that means that many are either holding (or HODLing) or adding to their positions.”

Henry Yoshida, a former financial advisor and founder of Rocket Dollar, a savings option for gig economy workers that allows them to incorporate cryptocurrency, alternatives and traditional assets in the same low-cost account, argues that crypto has a place in retirement portfolios.

“If you want to take a portion of your assets to go into alts, the best moneys to use for that are IRAs and 401(k)s because there’s a long-term time horizon and great tax treatment,” Yoshida said. “Right now, brokerage houses and financial advisors aren’t really enabling that for their clients, even those who have become comfortable with cryptocurrencies and private real estate. In reality, I don’t think they’re failing to offer these assets because they believe they’re inappropriate. It’s really because they don’t have a way to offer a lot of these products and generate revenue.”

Attractive benefits, but tax considerations

Although the potential benefits to investors are undeniable, taxes are one of the drawbacks to trading crypto in the taxable account space.

“Every time there is an exit, a dividend, an interest payment or some type of capital appreciation that is liquidated, there’s going to be a tax,” said James Jones, senior vice president of investor relations at CalTier Realty, a digital alternatives issuer with roots in private real estate. “There are all these new alternative asset classes that people are trading like crazy without realizing that they’re generating these huge tax bills.”

In an IRA, there is no need to track trades, noted Jeffrey Levine, chief planning officer at Buckingham Strategic Wealth.

“If you believe that a crypto position is poised to go ‘to the moon,’ then owning it inside a Roth IRA could make a ton of sense, as the gain would be tax-free (provided you meet certain Roth distribution requirements),” Levine said. “That said, there are some downsides, as well.”

One of those is the still-open question as to whether non-fungible tokens can be held in IRAs and Roth IRAs, as such accounts are prohibited from owning collectibles, Levine said.

The power of tax-deferred growth

Yet traditional IRAs offer powerful tax-deferred growth, and Roth IRAs offer tax-free growth. Compounding the growth of a digital asset investment over the course of decades of retirement savings may have some promise as a solution to the retirement funding crisis.

If an investor is periodically rebalancing, doing so in a tax-deferred account helps avoid paying taxes on short-term capital gains that can come with buying and selling digital assets, Satz said.

“Why retirement accounts? Because you get to defer taxes initially in a traditional account, or avoid them completely in a Roth account,” Jones said. “Tax is the No. 1 biggest enemy of every investor.”


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Christopher Robbins

Christopher Robbins is a nationally recognized journalist who has been featured as a speaker and panelist on topics including investing, personal finance and wealth management. He is a contributing writer for CoinDesk’s Crypto for Advisors newsletter.