Much is being written about Bitcoin and how it is transforming the world of finance and currency.
Bitcoin has gone from a project run by hackers to a multi-billion dollar enterprise which is shaking up how we think about money.
But, what is Bitcoin?
An easy question to ask but not so easy to answer in a single sentence. A broad answer would be:
Bitcoin is the evolution of money
to meet the needs of the digital world in the 21st century
Here are a few more definitions:
- Bitcoin is a currency, not managed by any central bank or government, that exists only in cyberspace.
- A Bitcoin is a unique digital address stored in a digital wallet. You can store your Bitcoins on a USB drive, your phone, your laptop or on a secure server.
- Bitcoin is a crypto-currency based on blockchain technology.
Some of that may sound like techno mumbo-jumbo.
There is a lot learn about to Bitcoin and crypto-currencies. For further reading we recommend the following sources:
- Bitcoin.com – Getting Started – lots of great information
- CoinDesk.com – a beginner’s guide
- Investopedia – top 6 books to learn about Bitcoin
How does Bitcoin Compare to Gold?
You may think that the oldest form of money still in existence; physical gold, cannot possibly have anything in common with Bitcoin, a currency that exists only in cyberspace.
Well, you’d be surprised.
There are at least two factors the currencies have in common.
The following chart explains more:
Another means by which to compare Bitcoin and Gold is the total amount of each commodity available in the world.
You will see that, as of mid-2017, Bitcoin is worth $41 Billion compared to the total market cap of Gold which stands at $8.2 Trillion.
It will be fascinating to see how this changes in the coming years.
Bitcoin for Your Retirement. Really?
If it sounds slightly (or very) mad to suggest Bitcoin for retirees then you may be surprised that Bitcoin IRAs are here already.
Some people are very interested in taking a small amount of their retirement funds and placing it in Bitcoin.
However, it is not for everyone by any means. For instance:
- If you are already drawing a pension and have a conservative approach to your investments, it is probably safe to say that the risk and potential 100% loss of your investment in Bitcoin makes it an inappropriate investment for you.
- If you are still working, saving for your retirement and are willing to put a small proportion of your retirement in a high risk investment then Bitcoin may fit the bill. This approach is taken on the basis you will be able to replace any losses with your earnings. So if you invested hundreds of dollars or a few thousand, you know your earning power could make up any losses.
We would suggest an investment window of 5-10 years to give Bitcoin the time to assert its influence over the financial markets. This is not a quick buck and you’ll have a roller-coaster ride, whatever the outcome.
What Could Possibly go Wrong?
With any investment, you need to consider the downside before investing, the likelihood of the downside happening and weigh that against the potential return on investment.
The early days of a disruptive financial technology (Blockchain) and a new financial market (crypto-currencies) gives potential investors (speculators) many ways to lose their entire investment.
We recommend reading the SEC Investor’s Alert about virtual currencies in 2014. It is relevant at the time of writing in 2017.
Things to consider:
- Scams, ponzi schemes and outright theft – when a market like Bitcoin comes along, so does the crime
- Blockchain technology fails – Blockchain is VERY promising but has yet to find its place in the mainstream. It could fail.
- Government regulation – constrains the growth and value of virtual currencies
So, you may want to take the mindset that a small amount held in Bitcoin is likely to result in a 100% loss.
Why are Governments Afraid of Bitcoin?
There are a number of reasons governments all over the world are watching Bitcoin very closely. Their concerns stem from the following fact:
Bitcoin is a Global Currency with No Global Financial Regulation
Governments like regulation.
Governments like control and in particular …
Governments like taxes.
No government on earth has a comprehensive set of rules for Bitcoin or crypto-currencies.
This means governments everywhere consider themselves at risk of their citizens and organizations (legal and otherwise) using Bitcoin as an anonymous method of moving funds around the world without detection by tax authorities.
You can be assured this will not be tolerated indefinitely.
The following links were noted in June 2017. This topic is subject to weekly if not daily change, we recommend you search for “Bitcoin Regulation” in Google or Bing to confirm the latest developments.
- The Guardian – US Govt bringing Bitcoin out of the shadows
- Russia is looking to regulate Bitcoin
- Wikipedia – Bitcoin legality
- Australia to use counter-terrorism laws to regulate Bitcoin
- Coindesk – Map of Bitcoin Legality
- Brave New Coin – Bitcoin regulation overhaul in Japan
- Marketwatch – Morgan Stanley says regulation is key to increase in Bitcoin value
The comparison with gold is that “Gold is a global currency with financial regulation.”
Where can I Buy Bitcoin for my Retirement?
It is pretty straight-forward to can go online and use US dollars to buy Bitcoin at a number of reputable exchanges.
Here is a list of places you can buy Bitcoin.
When you enter the world of buying and selling Bitcoin, you have to leave the world of traditional finance behind.
For instance, your Bitcoins will be stored in a digital wallet. Wallets can be stored on mobile phones, laptops, online and on secure computers.
It is recommended that Bitcoins should be stored on dedicated computer hardware in what is called “cold storage”. This means the digital currency you own is held on servers that are not connected to the Internet and cannot be hacked remotely. This layer of protection is essential if you have a significant sum in Bitcoin (or you start small and it becomes worth a small fortune).
Bitcoin – What to do Next …
So, you are now hopefully more informed about Bitcoin, crpyto-currencies and your retirement.
If you are interested in purchasing Bitcoin as part of your retirement plans:
- Do not sell all your shares, bonds and precious metals and buy crypto-currencies. The world of Bitcoin is still the Wild West and should be treated as such.
- Crypto-currency values will skyrocket and plummet daily. Scams will surface and crooks will run off with billions of dollars. This is not an investment on which to bet the farm.
- If you are still interested in digital currencies and have some spare cash you can afford to lose, consider placing a small percentage of your retirement funds in Bitcoin or other crypto-currencies.
- We recommend you talk with a broker who has experience in administrating self-directed IRAs and in particular has a Bitcoin service – you need to be speaking with experts.
Note: We are not investment advisers, you must consult an accredited financial adviser to help you take financial decisions appropriate to your situation.
Whether you are going to purchase Bitcoin or not, we recommend you learn all you can about crypto-currencies. They will change the world of finance and in turn your retirement plans.