Crypto

4 principles to remember before you include cryptocurrency in your retirement investments

Published

7 months ago

September 26, 2023

4 principles to remember before you include cryptocurrency in your retirement investments

Bitcoin, Litecoin and many other name brand cryptocurrencies can be bought through specialty brokers like Coinbase or Robinhood. Famous athletes and actors often tout digital currency and draw us into the exciting concept. You can buy, sell or spend cryptocurrency, often called simply crypto.

But what are cryptocurrencies? They are a kind of money that exists only in electronic form. Cryptocurrency accounts are not insured by the Federal Deposit Insurance Corporation and the digital money itself is neither issued by nor backed by the Federal Reserve (or any other central bank).

And, unlike the U.S. dollar, which has a relatively stable value, the market for cryptocurrency has been remarkably volatile. According to Coin Desk, a crypto trading platform, the price of one bitcoin
BTCUSD,
-0.26%
peaked at $64,972.24 on Nov. 10, 2021, and traded for $26,107.57 — 60% less — on Aug. 20, 2023.

Think before buying

Investment laws do regulate the sale of crypto. And the federal government is trying to educate investors and savers on the pitfalls and scams associated with this investment.

You may be confident and have figured out mining, where to buy crypto and which one you are going to buy, but you are not ready to make this purchase. Before you spend your hard-earned cash on any cryptocurrency, you should consider how it will fit in with your investment strategy, estate planning, risk tolerance and income taxes.

Read: Does your public pension fund hold risky crypto-related investments? It can take a fight to find out.

Here are four important financial planning concepts and how you need to look at them in light of a crypto investment:

1. Investment strategy

Does a crypto purchase fit with your investment strategy? Many people jumped on board as a “sure bet” heard on the street and made the purchase online. The investment becomes a personal and emotional decision. Yet, there are investment reasons to pause and rethink.

Consult with a pro

If you have always been a conservative investor, adding crypto to your portfolio is very risky. Consider your risk tolerance. Whether a crypto or Robinhood or other discount broker account, knowing how it fits into your overall plan can be the difference between a rational decision and a reactionary one on the day your currency declines.

Yet, if you do have an investment adviser, make them aware of your purchase, as they can only do their job well with all your information. With this addition to your portfolio, they may ask you to adapt your profile or make the assets under their management safer to offset the added risk you are taking on.

Read: Bitcoin is expected to bottom in October. Here’s why

2. Estate planning

Does crypto fit with your estate plan, practically and legally? Many people invest in crypto and have accounts with passwords but never provide the details to their family or loved ones. Lacking this information, the asset could be lost to the digital world no matter how much it is worth. Be practical. Share the details to protect this asset from your disability or death.

Complicates estate planning

Legally, if your lawyer has created a trust for you and everything you own is in the trust, then a crypto account may wreak havoc when it comes time to settle the estate. When you set up your account online, the system is easy, smooth, and quick, but it is not personalized. No prompt asks if you have a trust or a specific designation to align with your estate plan, which may cost time and money in probate.

Plus, if your legal documents do not grant authority to your executor to handle your digital assets, your heirs could be facing an unnecessary hassle with the crypto provider.

Also see: If Robinhood disrupts the retirement business, it won’t be because of meme stocks and crypto, but stodgy long-term investment strategies

3. Risk tolerance

Are you really prepared to watch this investment go up and down? Making money is fun. And earns bragging rights. Crypto can be a fun diversion but consider the rest of the factors in your financial life. Cash in the bank may not earn much but it has FDIC backing.

Even your investments in brokerage firms are guaranteed up to limits. Securities Investor Protection Corporation insurance covers you if the company, not your investment, goes under. There is no such assurance from Coinbase
COIN,
+1.11%,
Gemini or other cybercurrencies.

Using cash to buy crypto is shortsighted if your safety account is not strong. First things first. Consider cryptocurrency within the whole picture of your financial life to know what suits your goals and cash flow.

From the archives: (Nov. 2022) You need to understand the FTX debacle even if you have no investments in crypto

4. Tax policy

Are you following the tax rules? Whether it is cryptocurrency or stocks under your control, when you sell, keep cash available for taxes. If you have done any selling of crypto the past few years, your CPA may have asked you this question, which now appears on the 1040 form itself. Starting in 2023, crypto retailers will be required to issue 1099 tax forms telling you and the IRS how much you made or lost on cryptocurrencies. Keeping records and planning for taxes are essential.

Plus: FTX sues Sam Bankman-Fried’s parents over missing millions

As an experienced investor, taxes should come as no surprise. However, bear in mind you need to have cash available for upcoming taxes otherwise you could cause undue havoc on your cash flow. The company who sold and bought your currency has no responsibility to remind you to put aside cash. You do not want to have to sell crypto to pay the taxes thereby creating a cycle of more sales and more taxes.

Crypto can be a great investment for the right people. It will serve you best if you go in with your eyes open and remember that the above details matter.

Christine D. Moriarty CFP, is a Vermont-based financial speaker, writer and coach. She can be found at MoneyPeace.com.

More from Next Avenue:

Click to comment

Crypto

'Dogecoin Killer' Shiba Inu Burn Rate Spikes 800%, Crypto Market Rallies As Sentiment Soars And More: This Week In Cryptocurrency

Published

3 hours ago

May 5, 2024

Press Room

The week was a rollercoaster ride for the cryptocurrency market. The crypto world was buzzing with news, from Shiba Inu’s surging burn rate to speculation of certain altcoins becoming irrelevant. Major cryptocurrencies like Bitcoin BTC/USD, Ethereum ETH/USD, and Dogecoin DOGE/USD ended April with heavy losses, but the market sentiment soared as the new week began. Let’s dive into the details.

‘Dogecoin Killer’ Shiba Inu Burn Rate Spikes 800%

Shiba Inu experienced a resurgence in its burn rates, with an 800% surge and millions of coins burned in recent transactions prompting positive market sentiment and an increase in prices. Read the full article here.

Altcoins’ Fate: Strong Performers or Irrelevant?

Pseudonymous crypto trader “Cold Blooded Shiller” questions whether the market is beginning to phase out certain altcoins in favor of stronger performers and Bitcoin. He notes that while Bitcoin’s strength is undeniable, there’s an interesting separation among altcoins. Meme coins like Dogwifhat, Pepe, and Floki Inu have seen significant gains, but will they maintain their momentum? Read the full article here.

See Also: Bitcoin, Ethereum, Dogecoin Rally, As Market Sentiment Soars On Macro Data: ‘Above $67,000 We Fly Like A

Heavy Losses for Bitcoin, Ethereum, Dogecoin in April

April ended on a sour note for major cryptocurrencies. Bitcoin, Ethereum, and Dogecoin closed the month with losses of 16%, 19%, and 40%, respectively. The new Hong Kong Bitcoin ETFs, contrary to bullish expectations, may turn out to be a “complete failure,” according to finance and crypto newsletter, WhaleWire. Read the full article here.

Are Dogecoin and Shiba Inu Due for a Bounce?

Despite a turbulent month, traders remain optimistic about Dogecoin and Shiba Inu. Chart analyst Ali Martinez predicts a bullish breakout for Shiba Inu SHIB/USD, while crypto trader YG Crypto analyzes Dogecoin’s recent performance, which saw a dramatic 40% price drop. Read the full article here.

Crypto Market Rallies as Sentiment Soars

Despite the losses in April, the cryptocurrency market started May on a positive note. Major cryptocurrencies are trading higher, with Bitcoin bouncing well above the $60,000 mark. Read the full article here.

Read Next: Dogecoin Is ‘Primed For Higher’ But Pepe Is ‘On A Moon Mission,’ Exclaims Trader

Image: Eivind Pedersen from Pixabay

Engineered by
Benzinga Neuro, Edited by

Anan Ashraf

The GPT-4-based Benzinga Neuro content generation system exploits the
extensive Benzinga Ecosystem, including native data, APIs, and more to
create comprehensive and timely stories for you.
Learn more.

Crypto

Cryptocurrency Price Analysis: SHIB, DOGE, and XRP Face Varied Challenges

Published

11 hours ago

May 4, 2024

Press Room

Throughout much of the month, the majority of top assets maintained a sideways trajectory. While some experienced marginal upticks, others contended with declines. Let’s delve into the price analysis of Shiba Inu (SHIB), Dogecoin (DOGE), and Ripple (XRP). Shiba Inu (SHIB)Coin Edition’s evaluation of SHIB’s 4-hour chart revealed a bearish signal. Specifically, attention was drawn to the Exponential Moving Average (EMA), where the 20 EMA (yellow) crossed below the 9 EMA (blue)—a phenomenon known as a death cross. Moreover, SHIB’s price lingered beneath these indicators, signaling a diminishing strength for the token. Presently, there’s a prospect of SHIB’s price descending

Crypto

Bitcoin (BTC) User Paid Eye-Watering $100,254 for Single Transaction

Published

17 hours ago

May 4, 2024

Press Room

Bitcoin (BTC) User Paid Eye-Watering $100,254 for Single Transaction

A single Bitcoin BTCUSD transaction has caught the attention of many owing to its gas fee size. Blockchain analytics platform Whale Alert confirmed that a fee of 1.5 BTC was paid for a single transaction. This fee is equivalent to $100,254 based on the current market value of the top cryptocurrency. This fee is quite higher than the average transaction cost.

This user paid this enormous fee to have their transfer included in an ordinary Bitcoin block. Some of these transactions have been recorded in the past. In September 2023, a Bitcoin user paid a transaction fee of 19 BTC. This was around the time when Bitcoin price was trading at $26,000, hence, the 19 BTC was equivalent to $509,563.

Then again, in January, another BTC account paid over 4 BTC to have their transfer included in an ordinary Bitcoin block. The transaction was therefore charged with a whopping 1,800,890 sat/vB fee.

Potential reason for high transaction fee

Payment of such exorbitant fees usually raise suspicions as many market observers wonder the circumstances that could have led to it. At press time, Bitcoin’s average transaction fee was at a level of $4.696, up from $3.740 on May 4 and down from $6.696 one year ago. This is also a change of 25.57% from yesterday and -29.86% from one year ago, per data from YChart.

It is worth noting that ordinarily transaction fees can fluctuate due to network congestion. It once reached as high as $60 during the 2017 cryptocurrency boom. Hence, this outrageous transaction fee recently recorded could be a result of a mistake or a misconfiguration in transaction software. It could also be potentially for reasons known only to the transaction initiator or even a possible money laundering scheme.