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If you understand why Bitcoin is a long-term holding asset, you might also be interested in how to leverage retirement tax structures to minimize your tax expenses. There are many different ways to hold Bitcoin in an IRA, and like everything in Bitcoin, each method has its pros and cons. Let's take a look at the comparison of many different Bitcoin IRA methods.
**Sovereignty and Appreciation**
Before we introduce these Bitcoin retirement savings methods, you must understand the two most important benefits of holding Bitcoin: financial sovereignty and purchasing power. That is, the freedom you gain from holding the private keys to digital, non-custodial assets outside the traditional financial system, and the appreciation of that asset measured in fiat currency.
**Broker IRA (BITO) - Bitcoin Futures ETF**
One previously popular way to gain exposure to Bitcoin with minimal effort was using futures ETFs like the ProShares Bitcoin Strategy ETF (BITO). This fund aims to provide investors with managed exposure to Bitcoin futures. Futures are financial contracts that require parties to trade at a given future date and price. You lack key control — futures ETFs like BITO themselves don't even hold physical Bitcoin. BITO is still available, but its popularity has declined since the introduction of Bitcoin spot ETFs in 2024.
**Bitcoin Spot ETF in Broker IRA (IBIT, FBTC, GBTC, etc.)**
Bitcoin spot ETFs were introduced in 2024, allowing investors to use financial products that more directly track Bitcoin prices than previous futures and trust products. Like Bitcoin trusts and futures exchange-traded funds, you do not have key control over any physical Bitcoin used with these products. However, spot ETFs do hold physical Bitcoin alongside custodians such as Coinbase, Fidelity, and Gemini. They closely track Bitcoin's price because authorized participants have the right to create and redeem ETF shares, keeping the price in line with its net asset value.
**Non-Custodial Bitcoin IRA (iTrust Capital, BitcoinIRA)**
Many Bitcoin IRA products allow you to purchase actual Bitcoin but do not provide any key control, such as iTrust Capital, BitcoinIRA, Swan Bitcoin IRA, etc. Like Bitcoin proxy products, these products do not grant you control over your private keys. The biggest advantage is that you can directly access the price of Bitcoin, as you hold physical Bitcoin representation. In these products, ownership of Bitcoin belongs to you, and in certain cases, it can be sent to you in physical form if you switch IRA providers. You may also have greater flexibility in trading options compared to spot ETFs.
**Bitcoin IRA with Key Control (Unchained IRA, Choice)**
For various reasons, key control is important, but it is more broadly rooted in Bitcoin principles. Bitcoin allows you, as an individual, to custody your wealth in ways previously unseen. If you do not hold the keys, you ultimately hold Bitcoin IOUs, and key holders can make arbitrary decisions such as changing associated fees, rehypothecating, etc. Another often overlooked factor is that the company holding your keys may go bankrupt; if a company goes bankrupt, you become an unsecured creditor.
There are Bitcoin IRA products on the market that provide full control over your Bitcoin private keys and directly track the price movement of the underlying asset. With these products, you can eliminate single points of failure by controlling keys to physical Bitcoin in multisig wallets. One such product is Unchained IRA.
**Bitcoin IRA Comparison: Spot ETF vs. Non-Custodial IRAs vs. Key Control IRA**
**Convenience**
Holding Bitcoin proxies (like spot ETFs) in your existing IRA account will be the easiest way to understand Bitcoin price movements. It's as simple as entering a stock code and purchasing the product if your brokerage offers it. If you're new to Bitcoin and want to try exposing your investment portfolio, spot ETFs also allow you to easily enter and exit positions, albeit mostly during trading hours. While these products come with many trade-offs, they win in this category. Non-custodial Bitcoin IRA products are evidently the runner-up for convenience, as you don't have to worry about key management practices while directly accessing the Bitcoin price.
**Price Correlation**
If you hold Bitcoin proxies like spot ETFs in a brokerage account, you don't hold actual Bitcoin, but you still hold a carefully designed financial instrument closely correlated with Bitcoin prices, with minimal slippage. Nevertheless, spot ETFs aren't perfect — nothing beats holding Bitcoin itself in terms of price correlation. Products that allow you to hold physical Bitcoin track the price movement of the underlying asset, which is preferable for most investors.
**Counterparty Risk**
Products like spot and futures ETFs and non-custodial IRAs do not provide the benefits of key control, meaning your wealth is subject to multi-layered counterparty risks. For spot ETFs, for example, you're trusting the custodian (which could be Coinbase, Fidelity, or Gemini), the ETF issuer itself, and your brokerage with your retirement account. One of the downsides of these proxy products and non-custodial IRAs is that you may ultimately have to sell and distribute in USD. With a key control Bitcoin IRA, you can withdraw actual Bitcoin from your account at retirement age without penalties. By the time you retire, you might not need or want to sell it back to fiat currency as the world shifts towards a Bitcoin standard.
The old adage still holds true: "Not your keys, not your Bitcoin." The establishment of the Bitcoin protocol was to give you the opportunity to control your own wealth. Controlling your keys can minimize counterparty risk and eliminate single points of failure.
**Fees**
The cost range for all Bitcoin IRA products is wide, as is the value you receive. Spot ETF |
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Post time 25-2-2024 20:42:20