Could Crypto IRAs Replace Traditional IRAs?

More younger investors are looking to diversify their retirement accounts by adding bitcoin and/or other cryptocurrencies.

There has been a rise in individual retirement accounts that are focused on cryptocurrencies, and some crypto investors believe crypto IRAs will eventually be the industry standard.

What Is A Crypto IRA? An IRA is a tax-advantaged retirement investment account that operates under a specific set of rules. In exchange for the tax advantages associated with IRAs, investors have restrictions on how much they can add to their IRA accounts, and there are penalties associated with early withdrawal.

Cryptocurrency IRAs allow investors to add various types of cryptocurrencies to their retirement accounts.

Related Link: Millennials Are Twice As Likely To Buy Bitcoin Than Gold As Safe-Haven Investment

Pros Of A Crypto IRA: The biggest potential advantage of a crypto IRA is diversification. Love them or hate them, it’s becoming clear that cryptocurrencies are a unique asset class, and some even see bitcoin replacing gold as the preferred hedge against inflation for the next generation of tech-savvy investors.

Cryptocurrencies could theoretically help protect retirement investments in the event of a major stock market collapse or other economic catastrophes.

At the same time, many cryptocurrency investors simply believe that a rise in cryptocurrency popularity will make it a solid investment on its own.

Cons Of A Crypto IRA: The biggest potential disadvantage of crypto IRAs is their heavy fees. The typical crypto IRA will come with a holding fee, establishment fee, fees for asset purchases, fees for fund transfers and a minimum monthly account fee.

In addition, IRA cryptocurrency purchases must be made via a designated firm that will also charge its own fees.

In addition to the fees, IRA accounts can only be traded during regular market hours. Since stocks and bonds only trade during regular market hours, investors aren’t locked out of the market on weekends and holidays.

Yet bitcoin and other cryptocurrencies trade 24 hours a day, 365 days a week. They also have a long track record of huge upswings and downswings on weekends and holidays. Crypto IRA holders would be helpless to buy or sell during these huge off-hour swings.

Those swings are another potential con of a crypto IRA. One of the reasons why investors have favored gold as a store of value for thousands of years is because of its price stability.

Bitcoin has far outperformed gold overall in recent years, but it’s not unusual for bitcoin to lose 10% or 15% of its value in a matter of hours. In 2018, bitcoin finished the year down more than 72% on the year, while the price of gold declined just 0.9% that year.

Benzinga’s Take: Stocks, bonds, real estate and even gold have long, well-established track records of investment performance, but bitcoin and other cryptocurrencies have only been around for a little over a decade.

Given that a cryptocurrency’s supply is fixed, it doesn’t have the intrinsic value of a share of stock or a plot of real estate, and it doesn’t have the yield of a bond or certificate of deposit.

The prices of cryptocurrencies in the long term will be determined only by changes in long-term demand from investors and users.