5 Questions You Should Ask Yourself Before Investing In Digital Currency

[00:00:01] Speaker A: You're listening to PTC point of view, brought to you by preferred trust company, the preferred custodian for all alternative investments. We're here to provide retirement savers like you with the tools you need to succeed. Need a confidence boost when it comes to investing outside of the stock market? Do you want the power to build a tax sheltered nest egg that will last through your golden years? You've come to the right place. Turn up your speakers and turn off cruise control, because we're taking you on the alternate route to investing with your IRA. [00:00:39] Speaker B: Welcome back to another episode of PTC Point of View. Today in the studio, I have Chris Trembley, director of operations. Hi, Chris. [00:00:49] Speaker C: Hi. How are you today, Maddie? [00:00:51] Speaker B: Good. So today we are going to be talking about the top five questions you should ask yourself when considering digital currency as an investment in your self directed IRA. So, number one, number one, number one question you should ask yourself before investing in digital currency is, should I be leery of digital currency marketers? [00:01:16] Speaker C: So this is a big one. It's like opening Pandora's box. I think today, investing in digital currency through an IRA, through your retirement account, is much more common than it was a couple years ago. Kind of blew up on the scene, 2017, end of 2017, rolling into 18, and it's much more common. I think back then, there were a ton of these companies that that's exactly what they were doing was marketing to people. And I think when you say marketing, they're looking to be the conduit between your IRA custodian and your actual investment in digital assets. So most investments in the self directed or alternative world has to have. You have to have some kind of conduit in between, or a company in between, a sponsor, if you will, an investment sponsor that's selling an investment that you're then going to use your retirement account to purchase. It's very similar to, if you want to invest in precious metals in your IRA, there's always a precious metals dealer in between, right? Because typically, IRA custodians don't buy and sell any type of investments. They're really just the custodian of record. And then you have the investment sponsor that you work with or the precious metals dealer. They are actually the ones selling you the metals going through and telling you the unique things about the different metals, the types of metals that there are, the weight of the metals, the fineness of the metals, all that type of stuff. They're knowledgeable in that area. So very similar to that, you have digital currency brokers or dealers, if you will, so they are set up to sell digital currency, different kinds of crypto assets, anything from bitcoin to ethereum, stellar zcash, all these different altcoins that are on the market. But it is important, just like with any type of investment that you're making with your self directed IRA, is that you're vetting the companies that you work with. What happens in a lot of these scenarios is that these companies are selling these products, and then, of course, they are charging a fee or are making a percentage of the value of what you're purchasing for them. So you do have to be. I think you have to do your research and know exactly what you're getting into. I think one of the important things is that you realize that these people that are selling these products, they sometimes misrepresent themselves as actually being where your IRA is being held, which is completely different. You have to realize there's three parties there. So there's the IRA custodian, there's you owning the IRA, and then there's this investment sponsor, dealer, broker, whatever you want to call them, marketer, whatever you want to call them, that is actually facilitating the purchase of this particular investment. And so what we've seen is, you know, any, anywhere from a 4% to a 25% fee on what you're purchasing to them, to the broker for selling you this. And in reality, if you look at a lot of their agreements, because preferred trust company has done that. We've looked at a lot of these companies. We've looked at a lot of agreements that they have with the client. We've read between the lines, we see the fine print. You know, they're really not licensed to give you any sort of investment advice. They're not financial advisors. They're not investment advisors, you know, so it's a very interesting approach that they take to convince you to buy through them. [00:04:57] Speaker B: So, speaking of interesting, yes, I've been seeing online that people offer bitcoin iras. [00:05:06] Speaker C: Right? [00:05:07] Speaker B: That is not a thing. [00:05:09] Speaker C: That is not a thing. Neither is a real estate IRA, neither is a precious metals IRA. And there's. I don't know, there's four types of iras that the IR's allows for. Traditional, Roth, sep, and simple, very straightforward. What you can invest in in those iras are things like bitcoin, precious metals, gold, silver, platinum, palladium, real estate, real property, startup companies, oil and gas. Those are the types of products that you can invest. But there's no such thing as a bitcoin IRA. But yes, that's a huge thing today is to market to you. And then the companies that are marketing that, sometimes it's misleading, because what we've found is that clients think their IRA is actually being held with that company, which is not the case. They're not licensed to hold iras. They are simply putting a product in front of you, asking you if you'd like to buy it with your retirement dollars. [00:06:01] Speaker B: Just part of their marketing strategy, part. [00:06:03] Speaker C: Of their marketing IRA. Right. Bitcoin IRA. [00:06:05] Speaker B: But it's still a traditional. [00:06:07] Speaker C: It's still a traditional or a Roth IRA, taxed exactly the same as any other IRA. Maybe your IRa that you held it, TD Ameritrade or Edward Jones, the same exact IRa, just instead of holding Apple stock or stock and whatever you're holding bitcoin or ethereum or litecoin. So careful. Yes, careful. Due diligence is very important. Anytime you're using a self directed IRA to invest in any product, but especially in the digital markets. [00:06:37] Speaker B: Yeah, it can be very confusing. [00:06:38] Speaker C: Yes, it can be. Ask the questions. Is my Ira being held with you? What is your role? What are you getting paid for? Like, what are you paying, what are you paying this company 15% of your investment for? Why are you paying them $3,000 for you to buy bitcoin? It can be confusing. [00:06:57] Speaker B: So would you say people should be leery of digital currency marketers? [00:07:01] Speaker C: Yes, I would think so. Leery in the sense that you should always lead with caution. I think anytime you're making an investment. Right. Because every investment has risk, every investment has potential consequences. So you need to look at everything and do your due diligence. [00:07:18] Speaker B: Agreed. Let's move on to number two. Does it matter what trading platform is used for the purchase and sale of digital currency? [00:07:28] Speaker C: Again, here we go with the due diligence. I probably could say that a million times over, but, you know, there is a trading platform in between the marketer or the dealer broker that's, that's purchasing these crypto assets for your IRA. They have to buy it from somewhere. So they're these trading platforms that buy and sell. And some of them are licensed, some of them are not. Some of them are regulated, some of them are not. So what fee they charge, what percent of the investment they also get paid is important. So, yes, once again, back to that due diligence, making sure that the trading platform, their reliability and regulation, that's so important. And finding out exactly who the broker dealer is using to make those crypto purchases is important. [00:08:23] Speaker B: They don't all handle them the same way. [00:08:26] Speaker C: Instead of having to go through a broker dealer, you can actually purchase crypto assets directly through your IRA with preferred trust company. We can buy them directly from the trading platform instead of sticking a broker dealer in between the trading platform. The cost significantly. Remember, preferred trust company, because we are licensed to custodian, we cannot make money off of your investments. So if you want to make a $20,000 purchase of bitcoin, then you're going to make a $20,000 purchase of bitcoin. And we're not getting $2,000 of that or $3,000 of that. We actually, we do get a fee for processing the transaction of making the purchase, and it's a $200 flat fee. So it's very straightforward. It doesn't go up, it doesn't go down. It's flat to do that. So, yeah, you can buy directly, basically through the platform instead of putting a broker in between. [00:09:22] Speaker B: So do they just reach out to preferred trust to initiate that they would sell or buy? [00:09:27] Speaker C: Yes, exactly. So we have, obviously forms for everything because you are making the selection, the client is making the selection on what type of crypto, how much of the crypto. So, yeah, you reach out to us, we send you a form, you can complete the form, and we'll walk you through the process. We'll tell you exactly how it goes. It's pretty straightforward, and it can happen really, you know, same day, easy peasy. It's very, very straightforward. Yes. [00:09:52] Speaker B: Isn't that nice? [00:09:53] Speaker C: Yes. [00:09:54] Speaker B: Okay, moving on to the third question that you should ask yourself. Does it matter how the digital currency is stored? I know that there's two ways to store digital currency, non segregated and segregated storage. Let's talk about that a little bit. [00:10:13] Speaker C: Versus cold storage. So there's also that component. So in a cold storage scenario, there's either, you know, some kind of device for us. They're ledger nano devices that we use for cold storage, meaning your IRA has its very own device. It's not shared with anyone else. Thus segregation is happening. The wallet addresses that are a part of this ledger device, you have a wallet address for bitcoin, for ethereum, for ethereum, classic, for litecoin, and so on and so on. Each type of cryptocurrency has its own wallet address, and it's yours and yours alone. It's assigned to your IRA, and it's not being shared by any of our other clients. There's no commingling of, you buy ten units of bitcoin and somebody else buys 30 units, and they're in the same wallet. That is not happening. It's all separated, segregated completely. But there are custodians, there are companies, administrators out there that are keeping the assets commingled, meaning they have one bitcoin wallet address for all of their clients. [00:11:22] Speaker B: Is that referred to as a hot wallet? [00:11:24] Speaker C: Not referred to necessarily as it can be hot or cold. It can be hot or cold, but it's commingled, meaning your bitcoin is with everybody else's bitcoin. And your ethereum is very confusing. Segregation, just like anything similar to precious metals, when your precious metals are held at a depository, either you're going to have your gold stored by itself on its own, or commingled with 30 other clients. Segregation is really what you want for digital assets because it is such a volatile asset, super important. So you have to look at that when you're talking about purchasing digital currency through your retirement account. I think one of the biggest questions you ask is how is it stored? Is it commingled, is it segregated? And is it the safest way to store? Is cold storage segregated? 100%. Otherwise, you're opening yourself up to the fact that these things, hot wallets, it's all online, it's all digital online, and it can be hacked. It can absolutely be taken and stolen from you. So it's important to look at those various aspects of it for, for us. So we have had clients who have had their investments with us. Let's say. Let's take bitcoin, for example. They've had their wallet address. They have their wallet address assigned to them. They've got their bitcoin stored there, and they've wanted to transfer it to another company because they want to be able to trade on their platform anytime they want. And they want to be able to move the bitcoin back and forth. I don't, I don't know, ten times a day, if you will. And we have to transfer that bitcoin to that custodian. And this particular custodian uses a commingled wallet, meaning this client's bitcoin ended up with everybody else's and couldn't be identified. It actually took that new custodian about six months before they were able to identify the clients assets, the bitcoin, and get them reflected in the client's new account. The client was so upset that they ended moving back to us, but it took six months for. [00:13:37] Speaker B: And at that point, like, where bitcoin is could be way high or way down, correct? [00:13:44] Speaker C: Yeah. The client could have lost money. Oh, my gosh it was a scary situation, and we feel for the client because that realization may not be there, that it was going into a wallet that was stored with 30 other people's bitcoin. And so I think it was very eye opening for the client. Important that you ask those questions. How is my digital currency being stored? Is it in a hot wallet, cold wallet? Is it segregated? Is it non segregated? [00:14:12] Speaker B: So, to confirm, cold wallet is on a specific piece of hardware, like physical. [00:14:21] Speaker C: Right. [00:14:21] Speaker B: Okay. [00:14:22] Speaker C: And that physical hardware, that device, not only does it have certain security pins, but it has phrase catchphrases, 28 different phrases that are unique to that device. And it's never. It's never hooked in to the Internet unless you're buying or selling, so that unless the trade is happening and it's a very short period of time, otherwise it's not accessible. [00:14:51] Speaker B: And then hot wallet is online, web based. [00:14:55] Speaker C: Web based. And it can be accessed, it can be hacked. More risk, just like anything else. More risk. 100%. [00:15:01] Speaker B: Okay, so we kind of discussed this a little bit. [00:15:03] Speaker C: Oh, we did kind of three and four together. [00:15:06] Speaker B: Number four was, what are the pros and cons of non segregated versus segregated digital currency storage? [00:15:12] Speaker C: Sometimes, you know, it's a lot cheaper when you have non segregated and you're. You know, if a custodian is offering non segregated, they've got co mingled storage. It typically tends to be less expensive, of course. Right. And a hot wallet versus, you know, cold storage also tends to be less expensive. Remember, there is a cost to having the actual physical device, and there's a cost to having that device set up specifically to be attached to your IRA. You know, it does take time to set up the wallet addresses and the storage, the actual facilitation of the storage of the device, you know, it has to be in a very secure, remote location. There's a lot of cost that goes into that. Very similar to a depository that's storing precious metals. There's security surrounding those metals. Right? Same thing, security surrounding the digital currency. So that tends to lend to a bit higher of a price. But if you look at it overall, you have to weigh that price is worth so much more than potentially having your investment stolen or there been some kind of breach of security. So it's. It may be a little bit more expensive, but in the long run, it's the safer avenue to go to. So you have to weigh all of that. [00:16:35] Speaker B: It's less likely to draw attention to potential theft, correct? [00:16:40] Speaker C: Absolutely, 100%. And we, for us, you know, preferred trust company only stores, uses cold storage. And so, and we don't disclose how and where and who stores the devices. For us, this is all kept because it's a security concern and a security issue. [00:17:00] Speaker B: Yeah. Do we do cold storage? Do we only do segregated as well? [00:17:03] Speaker C: It's only segregated. Every IRA has its own storage device, its own set of wallet addresses. No commingling ever, which is one of. [00:17:13] Speaker B: The pros of segregated. [00:17:15] Speaker C: It's separated from everybody else's. You know, the thousands of clients we have. Your digital currency will never be commingled with anybody else's. [00:17:24] Speaker B: So, like you said, it's safer, less likely to be stolen, but it is a little bit more expensive. [00:17:32] Speaker C: Correct. [00:17:32] Speaker B: So there's pros and cons to everything. It just depends what you want. [00:17:36] Speaker C: That's right. And if you're willing to take the risk of commingled in a hot wallet, then, you know, you have to know your risk. I think that's the biggest thing in a self directed IRA with any of the investments that you're making, is you are responsible for the risk in the investment that you're taking. [00:17:52] Speaker B: Absolutely. So let's move on to the fifth and final question you should ask yourself when considering digital currency as an investment in your self directed IRA. It is. Is self dealing of digital currency investments in a self directed IRA allowed? [00:18:11] Speaker C: Right? I'm gonna guess. [00:18:12] Speaker B: No. [00:18:13] Speaker C: No. Right. Self dealing is not allowable. I mean, that's just in general, with any, any type of retirement account, in no matter what you're holding in your retirement account, be it real estate, precious metals, digital currency. But people want the control, obviously, that's the reason why people open self directed iras is because they want to control the investments. They don't want to use a financial advisor to help them make decisions on their retirement account. They want to select the investments, though. That's a huge draw to self directed iras. That self directed IRa also lets you invest in things that are completely outside of the stock market, alternative investments, things that are privately held. And so you're really having the opportunity to really take control of your retirement and make the decisions yourself. Where you do have to be careful is that you are not doing something that will compromise or disqualify your IRA. So there's a next level to having a self directed IRA to where the ultimate control sits, and that is having an IRA. LLC. So this is an LLC that is established and owned 100 by the IRA, and you, as the IRA owner, manage the LLC, meaning now that LLC can go out and make investments, and you control that. You kind of take the custodian. The custodian still sits over the IRa LLC, but the LLC itself, you have the ability, if you're working in digital currency, then you're the one who's going to decide how to store the digital currency. You're the one who's going to do the buy and sells via the LLC. And so, so that really is the only true way that you can go out there and make trades on a daily basis. If you want to sit and buy Ethereum at 09:00 a.m. and then sell it at eleven and then rebuy it at 03:00 p.m. you can do that through that IRa LLC scenario. Otherwise that custodian should be the one handling it and you should not be buying and trading like that through your IRA without having that LLC around it. [00:20:16] Speaker B: The Ira LLC is also called a checkbook LLC. [00:20:20] Speaker C: They used to call it, yeah, they used to really call it that because ultimately there's a bank account set up for the LLC where the funds go. We would send the funds from your IRA to the bank account associated with the LLC, and then from there you would use, you know, the LLC, the money in the LLC's checking account, if you will, then to go out and make those investments. So checkbook, I don't know that anybody has a checkbook anywhere. I remember them as a funny term, right? But yes, you would use the funds that are within. Typically when, when people are setting up the bank account that's associated with the LLC, they select a checking rather than a savings account, and then they use that to facilitate their buys for whatever investments they're making. [00:21:06] Speaker B: Let's explain self dealing a little bit for anyone listening that doesn't know what that means. [00:21:12] Speaker C: So self dealing is really where you're getting advantages of the IRA personally before your age, 59 and a half before you're of retirement age. [00:21:26] Speaker B: That would make sense. [00:21:27] Speaker C: It's very similar to, for instance, the IR's says that when you own an investment property within your IRA, you cannot live in it, right. You are gaining benefit of your IRA owned investment. And the IR's says that's not allowable. So you and no disqualified person can be living in that rental property that's owned by your IRA specifically. The whole purpose is to have a renter in there that you're making rental income for. That's then going into your IRA. The same concept is for digital currency. You shouldn't be making any gains personally from that digital currency. Any of the buy and sell and the trades it should be going right into your retirement. That's correct. Another thing to remember, too, is that digital currency today, it's very common to see this more and more, that you can use digital currency specifically even bitcoin more and more today to buy goods and services, but you should not be using. Right. You shouldn't be using the digital currency that's held in your IRA, that bitcoin, to go buy something outside of the IRA for your personal use. So you shouldn't be, I don't know what you're going to buy, but you know, whatever it is that you're going to buy, let's say something off of Amazon, because I know you can use digital currency to buy things off of Amazon. You shouldn't be buying something off of Amazon using your funds in your retirement account to then have something shipped to your personal home for your use personally, that it doesn't work that way. A lot of what, where that self dealing comes from. [00:23:03] Speaker B: Yeah, I heard that in some 711s there's digital currency like ATM's now. [00:23:10] Speaker C: Yeah. Oh, yeah. [00:23:12] Speaker B: That's crazy. [00:23:13] Speaker C: So that really becomes, that's where it becomes questionable because you do have a lot of administrators, custodians out there that are allowing digital assets in a retirement account, but allowing the client to buy and sell and use that digital currency and have access to that digital currency 24/7 where something like this to buy and sell. And then unintentionally, the client may be using those funds, that digital currency, to go out and buy things personally and really not realizing what ramifications that could have and what that actually means. [00:23:49] Speaker B: Perfect. Well, those are the top five questions you should ask yourself when considering digital currency as an investment strategy in your self directed IRA. [00:23:59] Speaker C: So just remember, if you are interested in using an IRA, self directed IRA to invest in digital currency, give us a call, because we can definitely spend time with you over the phone going through the ins and outs, giving you a little bit more detailed information, going through our regulations, going through the regulations of the trading platform that we utilize. And we're more than happy to help you through that. And our number we can reach at 702-990-7892 you can select option two for client services and any one of our team members can, can help you. [00:24:32] Speaker B: Thank you again, Chris, for joining me today. [00:24:34] Speaker C: Thank you, Miss Mattie. We appreciate it. [00:24:36] Speaker B: And thank you to our listeners for listening to another episode of PTC Point of View, a retirement podcast. [00:24:45] Speaker A: Thanks for joining us for another episode of PTC Point of View, where retirement savers meet alternative investments know someone who's struggling with a retirement strategy? Tell them about our show. Can't wait for the next episode. To learn more, visit our website at Preferred Trust Company or give us a call at 888992.