Could Cryptocurrency Pricing Volatility Be Good for Investors?

By Melissa Finnegan0 Comments
graph of volatilityAccording to CNBC, at the start of November 2017, Bitcoin was priced around $6,000. Fast forward one month to the start of December 2017, it was priced at $16,000 and eventually hit $19,000 later that month. But as of November 2018, Bitcoin is again priced around $6,300. So, to say that cryptocurrency, specifically Bitcoin, can be volatile is certainly not a stretch.

For some investors, their risk tolerance means they often avoid assets that demonstrate volatility. But for others, volatility could mean opportunity. Investors interested in cryptocurrencies specifically might be apprehensive due to the frequent price changes, but others implement specific strategies that take advantage of that volatility.

If cryptocurrency investors have the knowledge, patience and tools to buy and sell quickly, they can create the potential opportunity to profit in a short amount of time.

Mitagating Impact of Taxes for Cryptocurrency Investors

In addition to pricing volatility, taxes could impact potential profits when investing in various cryptocurrencies. Although it’s called “cryptocurrency,” as of 2014 the IRS treats cryptocurrencies as property for tax purposes, not as a currency.

One possibility to mitigate the tax impact – invest with an IRA. Assuming all IRS guidelines are followed, investments in an IRA may be tax-advantaged. Depending on the type of IRA, investments can grow either tax-free or tax-deferred.

The income or gains from sales of cryptocurrencies like Bitcoin are treated as a capital asset by the IRS, making them subject to either short-term or long-term gains tax. However, individual purchases and sales within an IRA do not require reporting to the IRS for short or long-term gains tax, eliminating the need to diligently track exact prices of every trade cryptocurrency investors execute. This meticulous documentation that is typically suggested for accurate IRS tax reporting may no longer be necessary when investing in crypto within an IRA.

According to Strategic Coin, cryptocurrency investors are becoming aware of using a self-directed IRA for the tax benefits. “That makes them a very popular option for investors looking to take advantage of the asset appreciation of cryptocurrencies while still benefiting from the advantages of traditional retirement accounts.”

Access Guide to Digital Currency in an IRA


Investing with an IRA: Potential to Take Advantage of Volatility and Mitigate Taxes

Knowing the potential tax benefits, cryptocurrency investors are evaluating options for using IRAs. Some current options available for investing with an IRA have slow purchase and sale processes. The delay in processing when it comes to buying and selling coins can be problematic for strategic cryptocurrency investors who utilize the potential advantages of volatility.

Equity Trust Company’s Digital Asset Platform combats this for their clients, with real-time trading, to potentially take advantage of these highs and lows.

With Equity Trust’s Digital Asset Platform, the prices of cryptocurrencies automatically refresh every 45 seconds, allowing users to take advantage of rapid changes in coin prices if they prefer to strategize in correlation with the volatility in their tax-advantaged IRA. The Digital Asset Platform has T+1 settlement.

Learn more about the potential tax benefits of investing in cryptocurrencies like Bitcoin in an IRA and how Equity Trust’s Digital Asset Platform works in our free guide.

Prior to making any investment decisions, please consult with the appropriate legal, tax, and/or investment professionals for advice. As a self-directed IRA custodian, Equity Trust Company will not provide investment advice or risk assessment of any investment. The digital currency market may experience a high degree of volatility and clients should consult with an investment professional before any investment is made.