SEC Issues Warning Advising Against Cryptocurrency IRAs
The Security Exchange Commission (SEC) has issued a warning for investors to steer clear from IRAs that are either wholly or partially invested in cryptocurrency if at all possible. As more investors are viewing cryptocurrency as a valid long-term investment instrument and solution to their retirement needs, some investors buying into the hot financial trend have been losing money in the process. The SEC stated that more people are operating self-directed IRAs than ever before, which has opened the door to cryptocurrency being used as a cornerstone of some people’s investment strategy.
In a recent column at CNBC, some of the pitfalls of using cryptocurrency — such as Bitcoin or Monero — were discussed in detail. One major problem that cryptocurrencies present to long term investors is volatility. An example of this being that anyone buying Bitcoin for their IRA in December of 2017 would have been be paying approximately $20,600 for one coin. That same coin would only be worth about $6,200 right now — depreciating deeply in less than a single calendar year. This hypothetical presents a major loss, particularly when compared to the most poorly performing traditional indexes that have — at worst — shown flat or trivial growth over the same period of time.
#bitcoinira I'm failing to understand y people want #bitcoin in IRA. Dispersed funds in IRA taxed as income whereas cryptocurrency is taxed
— James Szivos (@segaszivos) August 28, 2017
The SEC warns that even a small percentage of an IRA being tied up in cryptocurrency can potentially cause a significant decrease in retirement income, particularly in younger investors who have more time for their money to “work for them” via compound interest. The problem isn’t limited to volatility; there are concerns over wholesale collapses of some cryptocurrencies.
While no immediate threat of collapse is believed to be on the horizon for the major cryptocurrencies, the fact remains that said currencies are devoid of proper regulation and financial administration. The fear is that investors could lose hundreds of millions if not billions long term.
I cant find anywere on your site what your fees are. or how trades are actually done. it's all rumors why is it not in writing? To confuse people into signing up for some IRA they don't understand? @bitcoin_ira #bitcoinira #btc $btc@Bitcoin_IRA
— Crypto Block (@CryptoREI) December 27, 2017
Another point of concern, as reported on by Blockonomi, is the amount of fraud in the cryptocurrency market. A rash of IRAs based primarily on Bitcoin have sprung up recently, and most are not registered with the SEC nor any other recognized governing body. Lori Schock — director of the SEC’S Office of Investor Education and Advocacy — discussed this and the issue of ICOs (Initial Coin Offerings) as being major points of concern for the SEC in regards to being used as investment instruments.
“Now that some self-directed IRAs include digital assets – cryptocurrencies, coins and tokens, such as those offered in so-called initial coin offerings (ICOs) – we think it is important to alert investors about the potential risks and fraud involved with these kinds of investments that may not be registered.”
Regarding ICOs, the SEC believes that more than $100 million has been outright stolen from people investing in them over the last two years. In too many cases, they claim that ICOs raise capital and simply close up shop and never return money to their investors. SEC sources further claim that some ICOs close without a single word to anyone. On the dark net or dark web this is commonly known as an “exit scam”.
Lisa A.K. Kirchenbauer — president of Omega Wealth Management in Arlington, Virginia — echoes the sentiments of the SEC regarding cryptocurrency as an investment to Blocknomi.
“If it’s too good to be true, it probably is. This is not for your unsophisticated investor.”
