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Equity Trust client Robert has been interested in cryptocurrency for more than a decade. When he learned he could invest in cryptocurrency with his IRA (individual retirement account), he jumped in and bought Bitcoin in his self-directed IRA.
Robert spoke to Equity Trust National Education Specialist John Bowens during a recent webinar, discussing how he first got into cryptocurrency investing, the advantage of investing inside an IRA, how he researches the investments, and how he teaches his children about investing.
Here’s part of that conversation:
John: I’m excited to speak to Robert today. Robert has effectively used the Equity Trust Cryptocurrency Platform to invest, for himself and his wife. We will talk a little bit more through that process, and what that looks like.
Robert established his self-directed IRA for himself and his wife in April 2019.
On May 3, he bought Bitcoin. At that time, Bitcoin was trading at around $5,600.
When I pulled the Bitcoin price, as of November 20, 2019, it was trading at about $8,100. So, about a 70-percent increase in value, from May 2 to November 20, 2019. Congratulations to you, Robert, for taking advantage of the opportunity.
Note: As a directed custodian, we do not provide investment advice. This is for educational purposes only. Clients give us a direction to invest in digital currencies, as well as a wide array of other alternative assets, such as real estate, real estate notes, hedge funds, private equity, precious metals, and there are many other types of alternative assets that one can custody in their IRA.
Unfortunately, we didn’t jump on the bandwagon as early as we would’ve liked to…I’m happy with 70-percent returns.
Robert, Equity Trust Client with Bitcoin in his IRA
Also, it’s important to understand, in terms of cryptocurrency investing, I’m not here to endorse or recommend a specific coin. Robert will speak a little bit to his experiences with investing in Bitcoin, with his self-directed IRA, as well as his wife’s self-directed IRA. But that’s not an endorsement for these particular investments.
Of course, digital currency is a speculative investment and the cryptocurrency markets can be incredibly volatile, so you’ll want to make sure you do your own due diligence, and work with the necessary professionals associated with investing in these particular types of assets.
Robert, if you could, maybe start off by telling us a little bit about yourself, and how you got involved in virtual currencies?
Robert: I’m an engineer by background. I’ve been interested in early adopting on different ventures. We’re into real estate, and stuff.
I’m married and have a couple of boys. All the investment decisions I make, it’s in a partnership. That’s my number one thing. As long as we’re in lockstep together, we make the decision, and analyze the risk, and look at what we’re interested in doing. Then, making sure we both agree on the path to how we want to proceed. It’s really important to me.
John: Outstanding. You said it was approximately a decade ago that you actually got into cryptocurrency, correct?
Robert: That’s correct. We were developing a web-based company, and it was in the kids’ space, with trading cards. When we were developing that, one of our key coders was basically getting into the crypto world.
The space was pretty new and very volatile. Bitcoin, at that time, was trading at about $1 a coin. He got our interest, and we started watching it.
Then, we saw his career progress. His company has gone through a couple rounds of funding. He’s in France right now, with a company, out there in the crypto space. They do blockchain security.
Unfortunately, we didn’t jump on the bandwagon as early as we would’ve liked to. At one point, we wanted our boys to start some investing, and given them each $500 to invest in crypto, but we didn’t pull the trigger. In retrospect, I wish we would have pulled it way back then because it would have just been astronomical, the growth back then.
I’m happy with 70-percent returns. You know, there is some analyzation, and you have to assess your risk. There’s still some room in this market.
John: It sounds to me as if you’re still doing a significant amount of research, on a weekly or even daily basis, in the crypto markets.
For someone who is brand new to investing in cryptocurrency, and they’re looking for, “Where do I start to dive into the crypto markets? How do I do my research? How do I network with other investors?”
You had shared maybe visiting MeetUp groups. Can you share some pointers on where someone could go or look to get started in investing in cryptocurrency?
Robert: For me, it’s really how I research, and start being involved in any type of investment or new venture, is to determine the direction that you want to go. If you’re interested in it, try to find other people that have already moved forward on the path.
In real estate, I belong to a number of MeetUp groups. When I discovered MeetUp, in some ways, it’s life-changing. You go into a group of people that totally have your mindset, they’re interested in whatever you’re interested in – from hiking, to real estate. I’m in a number of real estate ones and a couple of cryptocurrency ones. They give you a jumpstart.
The crypto world, back 10 years ago, was really difficult. It was harder for the novice, average user to get in the space. What you’ll find in MeetUps is people much more knowledgeable than you in that area, but also people with less knowledge than you in that area. Everybody provides value to one another.
John: You selected Bitcoin for your first investment with your self-directed IRA. There are other coins available on the Equity Trust platform: Bitcoin, Bitcoin Cash, Ethereum, Ethereum Classic, Litecoin, Stellar, and Zcash. Then, the most recent addition is Bitcoin Satoshi’s Vision. That all came out of the fork that occurred not too long ago.
Robert, what attracted you to Bitcoin?
Robert: My belief is that Bitcoin is the number one. You’re talking about cryptocurrency, Bitcoin is synonymous with that. Everybody’s heard about it, they know about it. It seems to be the one that people watch. It’s probably the most common.
Robert: Before I got into Equity Trust, I couldn’t find any custodians that offered this opportunity (to invest within an IRA). Almost all the exchanges require you to connect your bank account. Then, once you do that, you’re doing a transaction. Typically, your transaction is going to be Bitcoin, or, like you said, Ethereum, or Litecoin. Those are a few of the popular ones.
In order to move to other things … Another coin we’re invested in is called Dash. You have to purchase your Bitcoin, get the cash into the system. You’re using an exchange, like Coinbase.
Then, you’re bringing it in to buy a currency that you can take to an exchange. Then, you take that currency and exchange it there.
All along the way, you’re paying transaction fees. There have been some issues, but they’re getting lesser, and the transactions are actually occurring faster. As those things develop, that’ll open the marketplace for more of a credit card-type of transaction with cryptocurrency.
When that comes, in my belief, I think it’s really going to open some things up. Right now, those fees are starting to diminish and the time to conduct transactions is starting to move a lot faster.
I have been self-directing my IRA for a long time. The website develop that we did, that was in a self-directed IRA.
Back then, in California, there were only a couple of attorneys and accountants that were actually in the self-directed space that had experience themselves. That was really key to us. We had to travel to the Bay Area to meet with some lawyers, to talk about how we do this.
Real estate is a great opportunity. Your money is sitting there, what better way than to take that money and invest it in something that’s tangible, you can touch? Like real estate, it’s kind of fun with that stuff. Then, you’re reaping all the benefits, the tax advantages of having the IRA.
I was really excited when Bitcoin became an opportunity for my IRA.
So, when Equity Trust allowed cryptocurrency in an IRA, I was trying to get in that space really quick. Having a custodian [hold cryptocurrency] is one more step to legitimacy. The custodian is regulated by law, it makes it more authentic of a transaction.
It’s not as ‘wild west’ as it was in the beginning. Now, you have some fiduciary responsible companies that are taking the transactions.
To be honest, it is much easier to get into to crypto space now, especially if you’re looking for self-directed. Equity Trust made it super simple, compared to doing it all by yourself.
If you do it yourself you’re bringing in and signing your cash into an account, then buying some cryptocurrency. You’re then taking the cryptocurrency, moving it to exchange, where you want to exchange it for other cryptocurrencies.
Then, the other thing that you have to be really careful of, is how do I secure that? You have to keep your number and the transaction ID. If you lose that, you’re going to lose your money.
There have been some hacks. It’s not with the coins, it’s with the people that are holding what they call your wallet. Your wallet is where it keeps these unique IDs, to tell you how much coin you have.
With Equity Trust, you don’t have to worry about it, they’re taking care of all that for you. If you’re not with somebody that’s doing it for you, you have to set up your own wallet. You can see it along the way, it’s a hard path to navigate, especially if you’re learning this by yourself.
John: Robert is describing the entire supply chain of acquiring cryptocurrency: Placing your first trade in Bitcoin, to that trade execution, following through the exchange. Then, ultimately, the settlement occurs, and the coins are delivered to our cold-storage vendor.
Equity Trust Company is providing the digital asset platform, essentially the technology hub, that brings all these vendors in together so that you don’t have to manage – as Robert was talking about – keys, IDs, or wallets.
That was something that we had to make sure that we narrowed in on, when we developed this technology, was a fully integrated, end-to-end system. If we had customers putting themselves in a position of not being able to mitigate the risk factors, that could become problematic in the future. We wanted to make sure we have a system that mitigates as much risk as possible.
Of course, just like I mentioned, there’s risk with any investment that someone would make with their self-directed account, whether it’s in real estate, or cryptocurrency, or precious metals. If we can mitigate those risk factors by putting technology components in play, that obviously is beneficial and advantageous to ourselves as well as our clients.
Could you speak a little bit to investing in cryptocurrency, or even if it’s tokens or other blockchain type mechanisms, outside of the IRA, versus inside of the self-directed IRA?
Robert: I talked about data mining. For that space, it is getting so competitive now, and then the price of electricity is really driving that. You have to be able to pay for the electricity to do the mining. For us, we are totally out of the space now. There’s too much competition. California electricity costs are just too expensive and prohibitive.
We bought cryptocurrency at the $8,000 price point mentioned earlier. We’ve been all along the spectrum, and still feel like, for us, it’s worth the risk. Then, certain things are happening in the cryptocurrency world that we’re hoping will produce some fruits. You’re still on the early end.
With the Bitcoin world, you really have to assess your risk. It is still pretty wild, and that’s why I said, with your partner, with my wife, and even with my kids.
Here’s the caveat with the kids. When they invested in Bitcoin, I made the promise to them that they would not lose their initial investment. I was willing to take the risk. Whatever they would put in, I would guarantee they wouldn’t lose. That was on me. I wanted them to be able to remove some risk, because they don’t have access to a lot of cash.
It was rewarding getting them into something that they wouldn’t have gotten in before they were teenagers.
Like I said, assess your risk. What are you willing to lose? Crypto is a wild ride. In between the time when I had invested with my Equity Trust account, I could have made over 100 percent of money I put in there. Bitcoin was up towards the $11,000 range.
There are some things that are happening in the crypto world that you have to watch and say, hey, is this going to impact us negatively or positively? Then, based on that, am I going to put some money into it? Like I said, I was investing at $8,000, and it’s fine because it’s still making some money.
Robert: I use Trading View. There are a lot of experts on there talking about what they think is going to happen in the space.
As far as watching the crypto space now, I’ve pulled back. You can watch it hourly, and see the changes. It gets to you a little bit. Then, it’s like, you know what? I’m just in it for the ride, we’re going to see how it goes. I’m not going to check this week, I’m not going to check this month. Then, I go back, it’s fun to see where it goes. Or, you can follow it every day. There is definitely action going there.
John: You brought up some great points and a good resource.
You could also check out our YouTube page. We have a lot of videos on there about cryptocurrency investing. Then, also, we have videos about real estate investing, various aspects of real estate investing, in and outside of a self-directed IRA.
Robert, you were already in self-directed IRA investing, in real estate it sounded like, and investing in business startups. You were waiting for that opportunity that a custodian would unveil this opportunity to invest in cryptocurrency. How did you find out about Equity Trust Company, and how did you find out about the opportunity of being able to actually use the self-directed IRA to invest in these markets?
Robert: I had been following Equity Trust, and some other people that are in that space as well, ‘kicking the tires’ a lot, with a lot of different companies.
So, when you’re you’re seeing this develop, you’re initiating phone calls and relationships with folks. Hands down, I would totally recommend Equity Trust. I was so grateful for the opportunity to get into the crypto space through a custodian. That was awesome.
I have over 10 years of interactions with Equity Trust [from real estate investing], and I feel like they have always treated me right. They’ve always had great customer service. They made the crypto transaction effortless.
There are some fees you’re going to pay – you’re going to pay with anybody. To be honest with you, it’s worth it if you want to get into the space. You’re going to pay those fees regardless. A lot of times, they’re higher than this. It seems pretty minimal.
The thing that I like the best about Equity Trust is they seem to be steady, they have always maintained a high level of customer service. I really appreciated that. They’ve been around for a while. Like I said, I’ve kind of been following them. We have invested with other self-directed companies, but I really like Equity Trust.
Like I said, they pretty much seem to be the first in the space, and I really like that opportunity. It’s like, hey, we pulled the trigger as quickly as we could, as soon as we found out.
John: Outstanding. I appreciate that, Robert.
Robert: The crypto world is simmering down a bit, so it’s becoming the norm. But the wild and chaos is really, in part, what drives the investment. As the fluctuations settle down, there’s going to be less and less opportunity. That’s one of the things that drove us to the crypto world. It was kind of fun, and it is a wild ride. That ride is not over, but when it is over, you’re going to be saying, “Oh, I wish I would have invested in that space.”
John: As you start to take advantage of the potential capital gains associated with investing in the cryptocurrency markets, obviously, capital gains outside of an IRA are taxable.
We know that the IRS and the government views cryptocurrency as personal property. Which means, if you buy an asset and you sell it in less than 12 months, you’re going to be subject to your ordinary income tax rate on those gains, which is the short-term capital gains tax rate.
If you hold it for 12 months or greater and you sell it, then you’re going to have long-term capital gains tax. Which, for some people is 15 percent, and other folks it’s 20 percent here in tax year 2019.
So, when you make these trades inside of a self-directed IRA, there could be some unique tax advantages. I like to refer to it as compounding interest in the absence of taxation, which can have a much more profound effect over many years to come.
Robert, are there any other closing remarks or comments that you would find valuable for other investors?
Robert: If you’re hesitant at all, get into the space. Just throw some money at it, to see how it goes, and realize it could go here or there.
From an engineering perspective, there’s a mindset you might have heard of called analysis paralysis, where you’re over-thinking so much you can’t make that decision to take that risk. I would say, you’ve just got to jump in.
We’ve been jumping in, and it’s paid off every time. At least, in education and experience, but also it’s paying off in actual money.
Having it in the IRA, it’s just another bonus. It’s just another way that’s going to help increase that dollar, because of the tax advantages.
I would say, jump in.
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, ETC 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.
Case studies are provided for illustrative purposes only. Past performance is not indicative of future results. Investing involves risk including possible loss of principal. Information included in the above case study was provided by the investor and included with permission. Equity Trust Company does not independently verify all information provided by third parties.
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