Can Your Clients Retire On Crypto?

William Freedman

Topics: Retirement, Investment Advisors, Third Party Administrators, Alternative Investments


  • Cryptocurrency holds several attractions for retirement planners, the most compelling of which is the potential for high return. 
  • This is offset by the volatility of the alternative investment's valuations. 
  • Increasingly, IRA administrators see an advantage in adding crypto capabilities to their skill sets, as digital assets can be held in the same self-directed IRAs as other financial instruments. 

By developing skills in certain asset classes, third-party administrators can make themselves more marketable to institutional investors and independent financial advisors. 


TPAs have offered precious metals through ERISA-qualified retirement accounts for over a decade. Let's give equal time to how they can add cryptocurrency to their client's portfolios. 


Reasons why … and why not 

The most obvious reason people might want to invest a portion of their retirement savings in crypto is return. In the trailing 12 months, Bitcoin Core -- the token you think of when you think of crypto -- is up almost 5x. You’re not going to find that in municipal bonds. 


Granted, the Bitcoin fever chart has never been a straight line. 

The trailing 12 months -- indeed, the trailing 12 years -- looks like the NordicTrack routine in Hell. (Credit: CoinMarketCap) 


But even when the crypto market tanks, it provides a degree of diversification. While gold negatively correlates with equities, crypto appears to have little correlation one way or another. 


Cryptocurrencies don't necessarily correlate with each other. Some tokens endeavor to act as true currencies, that is, as a means of exchange. Some are security tokens, which actually function like preferred shares. Some are utility tokens for which there are actual technological excuses for their existence -- these are generally Internet of Things-related. Others are stablecoins, intended to mimic the dollar, euro, or other reserve currencies -- basically a cheaper way of doing business in high-inflation countries without going through the expense of buying and selling forex. Some are privacy coins, and the less said about what they're spent on, the better. Net-net, crypto as an asset class, could make a case as a means to achieve portfolio diversification. 


Still, there are disadvantages to holding crypto in a retirement account. We mentioned earlier that prices are extremely volatile, and maybe that'll settle down by the time your clients start drawing on these accounts. Or maybe it won't. 


Also, there’s still the -- receding -- perception that crypto is a fad. Some of us are old enough, though, to remember people saying that about the internet. 


The people who said that, though, seem to have gotten jobs at the Securities and Exchange Commission. Of all the risks associated with crypto, maybe the biggest is compliance risk. China had a crackdown on Bitcoin mining that cratered the market worldwide. The SEC and the Commodities Futures Trading Commission are in a turf war over crypto regulation to the effect that signals to investors are decidedly mixed. And that’s just within the U.S. Worldwide, different regulators and central banks have different interpretations of what crypto actually is and different ideas of what that means for their individual nations. 


Value chain 

While it’s true that 2021 was the year that the cumulative market cap for the crypto space is fast approaching $3 trillion, it’s also true that the individual floats of Microsoft and Apple are not far behind -- and they actually make stuff. For comparison’s sake, the combined world stock market is worth well over $40 trillion. 


One way of looking at this is, “Crypto went from $0 to $3 trillion in a dozen years -- imagine the growth potential!” Another way is, “This looks like a small, niche-y market that’s lacking in liquidity.” 


Neither one is wrong but, if you ask us, crypto is becoming more mainstream every day as institutional investors add it to their portfolios and companies find real-world uses for utility coins. As evidence, we submit the ProShared Bitcoin Strategy ETF, the first SEC-approved fund of its kind to offer cryptocurrency futures to those who want to keep their investments on an exchange their brokers already know. 


This means Americans can now invest in crypto -- or at least crypto-adjacent securities -- without self-directed individual retirement accounts, the only permissible ERISA-qualified vehicle for alternative investments. ETFs trade like stocks, so they're legally permissible in any IRA, 401(k), or similar plan. 


Even so, we broadly agree with the skeptics who say that ETFs really don’t buy you anything except a very thin patina of respectability. So why not invest directly in crypto? Now that this can be done through PayPal and Venmo, really, why pay the transaction costs to buy it on the Big Board? 


Which brings us back to self-directed IRAs. The investing public measures them against each other on such factors as account security, expert assistance, beginner friendliness, account flexibility, and of course, fee structure. 


There is one critical difference, though, between a gold IRA and a crypto IRA: commingling. Precious metals need to be administered separately in their own designated account, but that doesn't hold for crypto. Your clients can keep their Bitcoin, Ethereum, Dogecoin, or whatever in the same self-directed IRA in which they keep private placement securities, LLC participations, and fractional ownership of racehorses. 


At the close 

There’s one more advantage for TPAs to consider when deciding whether to gain expertise in cryptocurrency: Crypto itself is starving for reliable administrators and custodians. 


Those professionals who do commit to crypto tend to concentrate on providing services only for those digital assets which already have the most liquidity -- and thus need the least babysitting. 


"Once you get beyond Bitcoin, Ether, Ripple, and Litecoin, you have a very small pool of custodians who’ll hold your assets,” according to Edward W. Mandel, CEO of, a decentralized -- that is, unregulated and thus illegal in the U.S. -- crypto exchange. “So far, the leading custodians of legacy securities trading have been slow to the table in the crypto space.” 


So this is an opportunity for administrators to introduce crypto to clients; it's also an opportunity to introduce administration to crypto. 

Curious how we can help you integrate self-directed IRAs into your business?

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