2017 was a transformative year for cryptocurrency.
Its combined market cap grew to more than $600 billion by the end of the year, up from just $15 billion in January 2017.
While soaring prices acted as a barrier to entry for some investors, the market has since softened, with significant price drops correcting last year’s skyrocketing ascent.
While this turnaround presents new investors with an intriguing opportunity to enter the market, some remain hesitant, often due to falsehoods they hear from friends, family and even the media.
Misinformation is nothing new for any technological revolution or asset class, so it’s not surprising that cryptocurrency has faced an uphill battle for broader acceptance.
As the director of strategic planning for a company that assists with cryptocurrency investment, I have already seen the currency struggle in the face of doomsday predictions, accusations of being a Ponzi scheme, security concerns and more.
Yet through it all, crypto is also emerging as an asset class that’s capturing the imagination of many.
This article will tackle several common misconceptions about entering the crypto market and clear up confusion surrounding the addition of digital currency to retirement accounts — a practice I believe is increasingly common for those with a long-term view.
First, let’s look at some general cryptocurrency investment myths….
1. It’s too late to invest.
As crypto prices skyrocketed in 2017, many expressed disappointment that they had “missed their chance.” When the market is more approachable, many say it’s “too late, and the crypto party is over.” This type of short-sightedness can act as a barrier to entry for new forms of technology.
In my opinion, the reality is that crypto’s value and influence will only grow as the technology is refined and it enters day-to-day finance. In fact, a recent report from JPMorgan said as much, asserting that cryptocurrencies and blockchain will continue to grow and evolve.
2. You have to be tech-savvy to understand cryptocurrency.
It’s important to thoroughly understand anything you’re investing in. But when it comes to cryptocurrency, that doesn’t mean that you need a formal education in cryptography or a comprehensive knowledge of how blockchain works. Think about it: Do investors who own stock in Google need to understand the search engine’s algorithms?
Research any coin you’re considering investing in, and arm yourself with the knowledge for smart decisions. If you’re new to investing in general, consider contacting an expert in cryptocurrency trading to get a sense of basic strategies and how they relate to this particular market.
3. The cryptocurrency market is a house of cards.
Remember the report from JPMorgan that sang the praises of cryptocurrency and blockchain? Last year, JPMorgan CEO Jamie Dimon called bitcoin a “fraud” and claimed he would fire any trader that began trading in it. Perspectives change.
Just like other aspects of finance, cryptocurrency has its share of bad apples and scams. But even the most virulent of doubters can’t deny that real-world cryptocurrency applications have already come online. Blockchain technology is already being explored in health care as a way to store patient records and record disease outbreaks. And as of July 2018, there are 3,434 bitcoin ATMs spread across the globe, including 274 in New York City alone. Because it’s still early, it can make sense to stick with the most highly regarded “blue chip” cryptocurrencies — for now. That said, consider this counterpoint: The well-known bitcoin’s rise in price was only the eighth-largest percentage change in 2017. Other cryptocurrencies led the charge overall.
4. Cryptocurrency is full of security threats.
While there are incidents of hacks and stolen cryptocurrency, a large contributor to many crimes is a general lack of safe security practices by individual investors. Every cryptocurrency owner has a private key that provides access to their digital wallet. When that key is exposed to third parties, owners risk being robbed.
The reality is that, with just a little due diligence, it is not difficult for investors at any level to protect their assets. For example, cryptocurrency users can opt to take assets offline on a device like a flash drive.
There are also a few common cryptocurrency IRA myths:
5. IRS compliance is a seal of approval, meaning a digital currency IRA provider is reliable.
“IRS compliant” is a term I believe was invented by a marketing person; in reality, it often just means a company works within the rules set up by the IRS. Most companies do this, so if safety is important to you, you need to dig deeper.
For example, does the solution offer offline storage? Does it provide insurance on your assets while they’re in storage? Another thing to look for is whether the firm is regulated in any fashion. While cryptocurrency is relatively unregulated at the moment, that may change. A firm that has already established a relationship with a regulatory body displays a commitment to working within a regulatory environment.
6. Digital currency IRAs have limitations that conventional IRAs do not.
Digital currency IRAs actually have more freedom than their conventional counterparts, as they fall under the broad umbrella of a self-directed IRA account, which places more investment decisions in the hands of the account owner. This control allows owners to invest in a wider variety of asset classes, and cryptocurrencies are just one of them. Others include real estate, private businesses and precious metals.
That said, digital currency or self-directed IRAs share a number of similarities with conventional IRAs. For example, IRA growth is tax-free until you take a distribution, and the same maximum limits on contributions apply. Further, you can set up a digital currency IRA in all of the same classifications as a conventional IRA, such as Traditional, Roth, SEP and SIMPLE IRAs.
With cryptocurrencies’ meteoric rise have come fears and misinformation about their stability as a long-term investment. While the technology and concept are different, there are benefits and risks for any investment. But the fundamental strategy of investing still holds true: Before investing a single dollar, conduct your due diligence and consider speaking to a qualified professional.