Prudent IRA investors looking for an emerging investment area should look no further. The future of cryptocurrency is here and this article answers some of the most frequently asked questions about this alternative investment.
In this article:
- What Is Cryptocurrency?
- What Is the Future of Cryptocurrency?
- Who Invests In Cryptocurrencies?
- Where Can I Find Cryptocurrency News?
- Which Cryptocurrency Has a Future?
- How Can I Invest in the Cryptocurrency Market?
- Disclaimers About Investing
Frequently Asked Questions About the Future of Cryptocurrency
What Is Cryptocurrency?
Cryptocurrency is digital currency that’s encrypted to provide privacy while operating outside a central authority, government or bank.
Basically, cryptocurrency provides:
- Ease of transfer
These three characteristics make cryptocurrency attractive to investors.
Regular currencies receive the backing of a central bank or government, which makes them easier to counterfeit and trace. On the other hand, cryptocurrency is essentially backed by programming rules and logic.
Understanding the Cryptocurrency Market
The cryptocurrency market is the wild west of investments today. Most cryptocurrencies are decentralized and unregulated, which contribute to their price volatility.
Understanding and decoding the cryptocurrency market can guide investors when making decisions. Cryptocurrency and blockchain technology have the potential to make financial transactions and money fast, reliable, and secure.
The Technology Behind Cryptocurrency
Blockchain technology enables each cryptocurrency unit to become anonymous. Essentially, technology hides the origin and destination of the currency, thus strengthening the privacy of the parties.
This makes the cryptocurrency market very interesting due to the disruptions in the financial world. In particular, money transfer, currency use, and buyer and seller privacy will see changes in speed and verification.
For investors, securing the future of cryptocurrency and their investment lies with accurate information and finding the right partners.
The great news? IRA portfolios can accept cryptocurrencies, specifically self-directed IRAs.
What Is the Future of Cryptocurrency?
While no one can accurately predict the future, cryptocurrencies can make the future more interesting by:
- Making all transactions fast. Rather than wait for one to three business days for a bank wire, parties receive via digital confirmation that a cryptocurrency transfer is successful.
- Everyone will use cryptocurrency, but not everyone will be aware of it. Cryptocurrencies use blockchain technology, which provides automatic review and execution of transactions without going through any human, making transactions cheaper.
- Banks and other entities will start using cryptocurrency because it’s easy to use, has cheap transaction fees, and is fast. In the economic and financial world, only those who are fit can survive, change, and adapt, and cryptocurrency may soon become the medium of exchange.
Who Invests In Cryptocurrencies?
Cryptocurrency investors largely fall in either of these two categories:
- The first group invests in cryptocurrency for capital appreciation.
- The second group prefers digital currencies to change the economic landscape by making current fiat currency backed by banks or governments obsolete.
Partnering with specialists in cryptocurrencies, like BitIRA, can shorten the learning process for investors. This need for an expert partner holds true, since having a popular cryptocurrency like Bitcoin as an IRA investment does present a fair amount of volatility.
Once the transaction is confirmed, the investor is now a participant in the cryptocurrency market and can receive tax benefits if they document their cryptocurrencies inside their self-directed IRA.
Lastly, the emerging cryptocurrency market can experience price spikes and valleys due to the news. Long-term investors may prefer to lessen their exposure to the highly volatile cryptocurrency markets, but portfolios with a bigger risk appetite will find cryptocurrencies a useful investment vehicle.
Where Can I Find Cryptocurrency News?
Timing the market is immensely difficult and unpredictable, not just in the cryptocurrency market but also other financial vehicles like stocks and bonds. Current events can impact the prices of both short-term and long-term investment horizons.
Cryptocurrency, like the emerging marijuana industry, has a love-hate relationship with investors, especially with legal and compliance. Any news about legislative or regulatory actions by any government can move prices in leaps and bounds.
For those with a medium to long-term horizon, reading from both market news and analysis can definitely help. However, always prioritize your investment philosophy over market analysis from media outlets.
For investors with a background in finance and investing, Seeking Alpha tends to look at both the fundamental and technical analysis of not just stocks but any investment.
The site also gives out disclaimers, like if the author has any holdings on any of the stocks, as well as possible disruptions for the analysis.
Investors may also want to check Investopedia News for any updates directly related to the business climate.
For a piece of more in-depth news and predictions, which are NOT certain, investors can go to cryptocurrency forums or cryptocurrency news websites. For example, the cryptocurrency heavyweight CoinDesk focuses on cryptocurrencies only.
Which Cryptocurrency Has a Future?
For cryptocurrencies, the question of legality heavily influences the price. Bitcoin is the leading cryptocurrency, and adoption of Bitcoin usually means that other cryptocurrency will follow.
Investors can perceive legality either through the lens of political will or through the eyes of the market.
To predict the future of cryptocurrencies, investors can look at factors like the rate of adoption as well as technical performance.
The top three cryptocurrencies with their market cap as per leading cryptocurrency price watchdog Coin Market Cap data as of July 7, 2019 are:
- Bitcoin (BTC), often touted as the digital gold. The most popular cryptocurrency in the market, some hedge funds, and Bitcoin ETFs exist in the market which shows the interest of the financial world.
- Ethereum (ETH), which allows developers to make blockchains and new cryptocurrency using its own data structure. Blue-chip companies are using Ethereum primarily as a blockchain for business processes, like Microsoft.
- Ripple (XRP), is an interesting cryptocurrency since a U.S. Company called Ripple Labs nurtured and basically control the cryptocurrency. XRP is an interesting experiment for a semi-regulated cryptocurrency.
Interestingly, there exist cryptocurrencies for specific niches.
For example, Monero (XMR) is known as the most privacy-focused cryptocurrency. Those who want their transactions to be almost untraceable should research more about XMR.
Another specialist cryptocurrency is VeChain (VET), which provides a ledger for retailers and manufacturers.
This digital system using VET as a cryptocurrency and as a blockchain ledger has made counterfeiting logistics report difficult. Global businesses use VET, like Kuehne & Nagel and the European Rail network DB Schenker, as of the latest VeChain partnership list.
Note: The cryptocurrencies in this article are present as an informational list of examples, not as a recommendation. Investors should always review if an asset fits their risk appetite before making any decisions.
How Can I Invest in the Cryptocurrency Market?
Since there are only very few limitations for a self-directed IRA as to assets, any cryptocurrency inside the IRS can receive tax advantages.
Investors can invest directly by purchasing cryptocurrencies from a broker.
On the other hand, investors can also limit their risk by buying ETFs or mutual funds. However, mutual funds and ETFs may have additional fees compared to investing in assets directly, so investors should review the transactions first.
Investors need to have a digital wallet first and secure the private keys.
Asking professionals in the cryptocurrency market should always be the first step, not only for possible investment discussions but also for proper procedures. A legitimate cryptocurrency specialist can give IRS investors a necessary perspective on their investments.
Disclaimers About Investing
It bears repeating that while this article may provide crucial information regarding investments, personalized guidance helps a lot.
Investors should know not only what kind of investment horizon and risk in an asset, but also how this purchase or disposal of investments affects in the long-term, like for taxes and reaching retirement goals.
No one can predict what the future of cryptocurrency is, but the signs do point to an interested market. As long as an investor stays within his or her investment philosophy and risk profile, any cryptocurrency investment is a worthwhile asset.
What are your thoughts about the future of cryptocurrency? Do you have any questions on how to invest in these new digital investment assets? Let us know in the comments section below.