In Q1 2024, the SEC in its landmark judgment approved the listing and trading of a number of spot bitcoin ETFs – including those by BlackRock, Vanguard and Franklin Templeton. This was most certainly seen as a stepping-stone in bringing the crypto and traditional financial markets together – offering a regulated pathway for investment in digital assets.

But still not many investors from both Web3 and traditional investment backgrounds seem to fully understand the key differences between investing in bitcoin versus investing in bitcoin ETFs.

When you purchase bitcoin you gain full ownership and control over your assets (lest we forget with unlimited trading hours and potentially lower fees). But there are some downsides to be aware of. First, you need technical blockchain wallet know-how and an understanding of cryptoeconomics. Secondly, and more importantly, you can’t include your bitcoin investment in traditional retirement plans like 401(k)s.

Investing in bitcoin ETFs can also be advantageous for a few reasons: Ease of access, simplified investment, regulatory and security benefits, market integration, liquidity, diversification and potential tax benefits. The main downside is that you don’t really personally possess actual bitcoin. Add to this high management fees, operational costs, market hours limitation and potential tracking errors.

But what if there was a third option? One that combines the positives of both – direct bitcoin ownership and bitcoin ETFs – while also addressing their respective negatives? If you live in the United States, chances are that you have already heard of an IRA (short for “Individual Retirement Account”), a long-term, tax-advantaged savings account designed for individuals with earned income to save for retirement.

Rise of crypto IRAs

In recent years, IRAs have gone on to cover a broad spectrum – including cryptocurrencies, known as Crypto IRAs – a self-directed Individual Retirement Account (SDIRA) which allows investors to include digital currencies like bitcoin, ethereum and others in their retirement portfolios. And as more investors are flocking to Crypto IRAs in the middle of this ongoing bull run, it's quite evident that the future of retirement planning is becoming increasingly intertwined with the world of digital assets.

Investing in a Crypto IRA can offer several benefits and advantages: Tax-advantaged growth (either tax-deferred or tax-free), digital asset security and diversification. By incorporating cryptocurrencies into retirement savings, investors are bullish on adding this decentralized asset class to their portfolios – potentially maximizing the compounding effect of investments while minimizing immediate tax liabilities.

Let's consider a simple example to illustrate the tax benefits. Say you buy $25,000 worth of bitcoin and it increases to $65,000. That's a $40,000 gain. While this sounds great, the issue is that these profits are now subject to capital gains tax. In comparison, if you buy $25,000 worth of bitcoin in a Roth IRA (with tax-free growth and tax-free withdrawals in retirement) and its value increases to $65,000 you've still made a $40,000 gain.

And the best part is that when you sell in the future, you're not subject to capital gains tax and you can keep all of your profits.

But for crypto IRAs to pave the way for the future of retirement investing, we need a trustworthy, reliable and user-friendly approach. We need a solution that not only simplifies the process of buying and selling crypto through tax-advantaged retirement accounts, but also keeps costs low, stays transparent and makes investing in crypto assets with IRAs a walk in the park.