Bitcoin and other cryptocurrencies have become wildly popular investment options for a broad range of clients. While many only dabble in crypto investments, some financial service firms have begun offering virtual currency as investment options for self-directed IRAs.
Today, Bitcoin and other cryptocurrencies are taxed in the same manner as other types of property — meaning that from a tax perspective, it can generate capital gains tax consequences similar to those from the sale of stock and other common retirement account investments.
We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions about whether Bitcoin and other cryptocurrencies belong in a retirement account investment lineup.
Below is a summary of the debate that ensued between the two professors.
Byrnes: Bitcoin and other forms of virtual currency are here to stay. Ignoring that does a disservice to clients who may be interested in cryptocurrency investments. Cryptocurrency investments can add diversification to any retirement portfolio and give clients potentially valuable protection from an extreme market downturn like the one most of us experienced only a few years ago. I’m all for expanding the investment choices given to retirement investors.
Bloink: Cryptocurrency is an extremely risky and volatile investment. Yes, taxpayers should be free to make their own investment choices — if they have the funds to do so without jeopardizing their future financial stability. However, while diversification is an admirable goal, there are much less risky ways to go about it. Advisors should discourage clients from making substantial cryptocurrency investments with their limited retirement funds.