Bitcoin sounds complex, but it’s fundamentally a simple financial instrument. It’s a type of “cryptocurrency,” a digital-based money system that enables people to securely send money to other individuals or businesses through the Internet. Bitcoin is based on a public ledger called the “blockchain” that transparently shows all Bitcoin transactions.
The popularity and rising price of Bitcoin (1 bitcoin equals $6386.01 as of 10/31/2017) have turned it from a speculative investment for those in the tech industry to something of interest for the investing public and financial institutions. Bitcoin is not backed by a government or central bank, but it can be exchanged for traditional currency and functions as a viable investing alternative to currencies such as the U.S. dollar and gold.
So how do eager individual investors start buying Bitcoin?
Using a Bitcoin Wallet
The most popular method of purchasing Bitcoin is through a digital wallet that is purpose-built to handle Bitcoin transactions. One of the most popular wallets is operated by Coinbase, which offers investors a simple app or computer-based interface for buying Bitcoin through a credit card or through a linked traditional bank account. Investors purchase the currency at the current rate, similar to buying a stock on a market order, and can then sell their investment at their convenience. Funds from the sale can be routed to a bank or PayPal, providing the investor with instant liquidity. Buyers can set up automatic periodic buying, so they can enjoy the benefits of dollar cost averaging.
New investors who see the price of a single Bitcoin at more than $6,000 and climbing might mistakenly think they are “priced out” of the market. However, Bitcoin can be purchased fractionally, so even a $100 investment could pick up a fractional amount of the cryptocurrency. This structure makes Bitcoin investing possible for those individuals with limited funds.
Bitcoin as a Retirement Investment
Investors looking to blend the return potential of Bitcoin with a traditionally-structured retirement account can now buy Bitcoin within an individual retirement account (IRA). The investor will need to find a trusted company that offers cryptocurrency IRAs that manages the purchase and safeguarding of the bitcoins. Once the account is established, the investor can make contributions over time, and then anticipates the long-term gains of the cryptocurrency.
Bitcoin-based IRAs provide investors with an investment that is largely independent of the value of the dollar and downturns in the traditional stock market. Investing in Bitcoin is now seen as a “safe haven” that also offers the potential for steady year-over-year growth, as well as diversity. No bank or clearing house is involved with such transactions, the buyer simply needs a custodian that offers cryptocurrency IRAs and that manages all of the transactions on the public blockchain and keeps the “key” safe. The custodian also ensures the IRA meets all of the necessary regulatory requirements.
Another investment that might be created in the next year is a Bitcoin ETF, or exchange traded fund. These are essentially mutual funds that are bought and sold like stocks, and there’s growing interest to create a Bitcoin-based ETF. The market potential is so vast that Bank of America estimates its potential size as $1.6 trillion, given the liquidity and the interest from so many financial institutions around the world.
To learn more about how to save for retirement by investing in Bitcoin, Ethereum, and other digital currencies as part of a self-directed IRA, visit http://coinira.com.