Why the only place you should invest in bitcoin is in your IRA – MarketWatch

Posted: November 25, 2020 at 9:54 pm


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If youre going to buybitcoin BTCUSD, -2.06%, for heavens sake do it in your individual retirement account.

Im not saying you should or shouldnt buythe digital virtual currency, which is booming once again. Im just saying, if you do decide to buy it, as an investment or a trade, do it in your IRA or some other tax-sheltered account. (A growing number of these let you ownbitcoin).

That way you can ride the latest mania, maybe make a quick profitand not have to pay any tax when you cash out.

The IRS treatsbitcoinas property, meaning any gains you make outside of a sheltered account will count as ordinary income.

Bitcoinhas risen 70% since the start of October and is nearly at record highs. Its more than doubled in price in a year. Ah yes, the boom times are back. Thebitcoinfanatics are reappearing after their three year hibernation. Cryptocurrency experts will soon be cropping up on cable TV, if they arent already.

Traders riding this high risk bandwagon are making out like banditsfor now, anyway.

And then theres Thanksgiving.

It was Thanksgiving three years ago that sent the cryptocurrency mania into orbit. Relatives whod made money frombitcoinpassed on the news to other relatives over the turkey, and explained whatbitcoinwas and how it worked. The other relatives went home and joined in. Bingo.

Bitcointripled in about a month.

Could it happen again this time around? Sure. Why not? Nobody knows.

You could make a quick profit. There again, you could make a quick loss.

But if you want to play and keep down your risks, just play with the houses money.

Its an old Wall Street traders trick, explained to me by an investment analyst years ago early in the dot-com bubble.

Start by buying, say, $1,000 worth ofbitcoin(or $100, or $100,000, or whatever suits your budget). If it rises, and you start to show a profit, buy a bit more. Each time it rises, and your profit grows, buy a bit moreand a bit more

But do not buy if it starts falling. And cash out if it falls to a trigger point you set in advance, such as 20% from the peak price. Be willing to take a loss and walk away.

Ride the train while it keeps going. Just remember to get off before it hurtles over the cliff.

The disastrous end of the last crypto bubble was signaled quite clearly in advance: A front-page article in the New York Times Style section cheering on the bubble, entitled, Everyone Is Getting Hilariously Rich And Youre Not.

That was the peak of the market.Bitcointhen plunged 80%. Other cryptocurrencies collapsed even more.

You can set your watch by these things.

Bitcoinhas been around for over a decade now. Technologists and fanboys say that the software and design behind it is quite brilliant.

But of course that has nothing to do with investing.

Bitcoinis a largely useless asset. I am still waiting for a singlebitcoinfan or expert to explain to me whatbitcoinsare really useful for, other than money laundering. I already have my pick of other, legal currencies and gold. Its quick and easy these days to transfer money online.

Some suggestbitcoincould provide cheap banking services for the poor and unbanked around the world.Goat herders in Turkmenistan will keep their money in cryptocurrencies and manage it on their smartphones.

I will believe it when I see it.

I asked a crypto fanboy the other day what the legal utility ofbitcoinwas. Attestation, he replied. I asked him to explain what he meant, and he sent me a link to an online dictionary.

Attestation: A proof of concept. OK. Big deal. Why would that make it valuable?

Admittedly, cryptocurrencies are excellent for laundering money. If I was in the business of selling illegal drugs, evading taxes, supporting terrorists, or blackmailing local authorities and hospitals with computer viruses, I would love this stuff.

Meanwhile, remember thebitcoinmarket is effectively a Ponzi scheme. Old investors can get paid out only with money from new investors.No, its not the same with stocks and bonds. Bitcoinsgenerate no earnings of their own. They pay no coupons or dividends.

So you may buybitcoinat $18,000 hoping to sell it to someone else at, say, $20,000. Why would that person buy it from you? Theyd be hoping to sell it to someone else for, say, $25,000. And why would that person pay $25,000? Theyd be hoping

You get the picture.

Bitcoin, and the blockchain technology behind it, is apparently fabulous technology. But so what? Without a compelling application its just a very clever bit of tech, like the old joke about the inventor who comes up with an ingenious kitchen appliance that can scramble an egg inside the shell. Yes, its brilliant. But why do I want it?

If I werent writing aboutbitcoin, Id probably be trading it. Never let a bubble go to waste. So maybe you can make money (real money, measured in U.S. dollars or the equivalent). Its high risk. But good luck.

Just remember: Save yourself taxes and headaches by doing it in a tax-sheltered account, like an IRA. Oh, and watch out for the end of the track.

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Why the only place you should invest in bitcoin is in your IRA - MarketWatch

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November 25th, 2020 at 9:54 pm

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