- Cryptocurrency outperformed most traditional assets in 2019.
- Market experts say cryptocurrency investments in 2020 should rise, with Bitcoin possibly hitting the $50,000 mark.
- Purchasing crypto with retirement funds with a Self-Directed IRA vs personal funds provides tax advantages and the ability to generate compounded interest.
Cryptocurrencies, such as Bitcoin, performed well last year, despite trading much lower than its record highs in Dec. 2017. Cryptocurrencies may not have been as strong as they once were, but crypto investments outperformed U.S. equities, commodities and other well-known traditional assets for 2019.
Although cryptocurrencies did not start strong in 2019, having less success than virtually all traditional assets, they began to rebound in March with Bitcoin spearheading crypto’s success. There are many reasons for the rise of Bitcoin and other crypto, but many mark Facebook’s announcement of their own digital coin, Libra, as the main reason for the comeback of cryptocurrency.
In mid 2019, cryptocurrencies had a good streak, as they greatly outperformed other asset classes. While their performance has gradually declined since then, crypto is said to be among the strongest performing asset class of the decade. In fact, Bitcoin had the highest ROI of any security in any asset class in the last decade. But given its volatility, it is considered a very risky investment.
Cryptocurrency Investments in 2020 – What to Expect
Last year, Bitcoin, the first and most popular digital coin, was on a decline but ended the year nearly doubling in value. According to Nexo co-founder, Antoni Trenchev, Bitcoin will continue to rise in 2020 and easily surpass the $50,000 mark. The potential rise is in lieu of an upcoming halving event in Bitcoin, which occurs approximately once every four years. The process of halving is known to have a long-term impact on the price of cryptocurrencies.
“The last time this happened, Bitcoin rallied 4,000%,” Trenchev said of the halving event in a recent interview with Bloomberg. He went on to say that Bitcoin could become the new gold, particularly in light of investment trends due to U.S.-Iranian tension. “Bitcoin,” Trenchev said, “is rallying on par with gold.”
Bitcoin vs Gold – Not Bitcoin vs Currency
The initial idea behind Bitcoin was to rival currency, and to be used for simple transactions such as buying a cup of coffee. Since this is nearly impossible due to the way cryptocurrency is taxed, the more “persuasive narrative” is to compare cryptocurrencies with gold, according to Trenchev.
The outlook of cryptocurrency in 2020 is optimistic if crypto assets can claim 10% of the current gold market. If achieved, Trenchev says that the price of Bitcoin would reach the $50,000 mark.
Cryptocurrency Investments with a Self-Directed IRA
As a retirement investor, you can use your retirement funds to purchase cryptocurrency with your retirement funds. The benefits of using retirement funds instead of personal funds are tax advantages and compounded interest. Additionally, the best way to buy Bitcoin and other cryptocurrency is with an IRA to avoid the complicated IRS tax laws.
In order to use retirement funds to purchase cryptocurrency, establish a Self-Directed IRA at a passive custodian (also known as a Self-Directed IRA custodian), such as the IRA Financial Trust Company. Keep in mind, if you establish your IRA at a bank or financial institution, you most likely will not have the privilege of purchasing crypto, as it is an alternative asset, and most banks and financial institutions only sell traditional assets. This includes stocks, bonds, CDs, mutual funds and the like.
A passive custodian, on the other hand, doesn’t sell financial products; it is responsible for the establishment and administration of the Self-Directed IRA. Thus, you have the freedom to make virtually any investment you wish. Just be mindful of the IRS prohibited transaction rules.