Started as a small project, cryptocurrency has become a large and continuously growing part of the finance industry. These blockchain tokens are making way into retirement planning slowly. Recently, some major companies have opened their doors to cryptocurrency as an investment option. If you are considering cryptocurrency for your retirement planning, you need to know the risks that come with crypto assets.
It is no secret that the crypto ecosystem is fickle, and in retirement planning it is important to monitor and reduce risk so your assets last 20-40 years. However, cryptocurrency may offer retirees a solid diversification option.
The Newest of New Paradigm
While trends have been observed, analysists are still studying the ups and downs of the cryptocurrency ecosystem. Some experts will say that it is too risky to invest while others will say by not investing you are losing out even with the rules still being written and changing often. Cryptocurrency may offer diversification to your retirement portfolio. The risk lies within your decision to invest or not.
You are likely very familiar with the success story of Bitcoin and Ethereum. Just this year alone cryptocurrencies have fluctuated significantly. In 2021, Bitcoin dropped $30,000 in value within 3-months.
New Cryptos Launched Often
There are over 13,5000 cryptocurrencies in existence. Some are considered overvalued, others undervalued, and others are predicted to be “just right” for long-term investments. But there are new cryptocurrencies added on the market daily, so when investing choose wisely.
Traditional Accounts & Crypto
Only a few plan sponsors allow for cryptocurrency to be invested in for retirement. There are options under cryptocurrency such as Bitcoin IRA or Bitcoin 401(k). You may rollover funds into a self-directed IRA that allows crypto investments if you qualify. Please note, a lot of the cryptocurrency ecosystem is not government regulated and poses greater risk than typical market stocks and investments.
Taxes & Recording
Record keeping is very important within cryptocurrency gains and losses. Within the USA, cryptocurrency is taxed the same as any other gain or losses on stock for long-term and short-term. However, the recordkeeping and reporting are not as established as with regular trade assets. It is primarily on you to keep accurate records.
The Exchanges & Brokerages
Cryptocurrency is traded on a crypto exchange mostly, but you can trade through a broker. While more expensive, brokers are often much less confusing. Purchasing directly on the exchange can get complicated fast.
At-Risk for Hacking & Theft
Unfortunately, being unregulated means cryptocurrencies are not as protected. There is a greater risk for theft and hacking. Heedless of your storage method—keep investment in the exchange, use external storage device, or store offline—there is a need to have extra precautions in place.