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Digital Currency

Digital currency has become one of the most discussed alternative investment options over the past few years. Sometimes called cryptocurrency, digital currency allows instantaneous transactions and borderless transfer-of-ownership, which separates it from physical, fiat currency. However, like physical currency, it can be used to buy physical goods and services as well. And while this technology is still in its infancy, many investors are now looking for a way to invest in this new alternative asset in tax-advantaged retirement accounts.

Digital currency like Bitcoin and Ethereum has become a go-to investment for many investors. And Kingdom Trust’s platform is the first to allow self-directed retirement accounts holding digital currency investments directly.

Bitcoin, Ethereum and other digital currency assets are grabbing the attention of government entities, Wall Street and Main Street, but many are unaware that you can hold digital currency inside a retirement account. In fact, holding digital currency in a retirement account has been allowable since 2014. IRS Notice 2014-21 declares the asset as property for tax purposes, having “an equivalent value in real currency.”

These cryptocurrency assets may provide an additional opportunity for diversification beyond the traditional world of stocks, bonds and mutual funds. Digital currency uses sophisticated encryption (or “cryptology”) techniques to regulate the generation of currency units and verify the transfer of funds. The transactions occur independent of a central bank, which makes this type of property attractive to investors wary of centralized currency.

Kingdom Trust is the go-to custodian for digital currency investments, as we provide industry-leading service and a simple online account opening process. We are the only custodian to allow you to hold digital currency investments directly in a self-directed retirement account.

To invest in digital currency, you will need to setup an account with a firm that specializes in the area or seek an exchange or storage provider. Kingdom Trust has established relationships with leading firms in this area and works closely with the wallet and offline vault (“cold storage”) providers to ensure your investment is stored properly and meets IRS requirements.

If you don’t want to hold digital currency directly, you can invest indirectly via a fund holding digital currency and issuing shares based on the currency’s value. These could be publicly traded or private funds, as well as hedge funds. Keep in mind that unlike your IRA directly investing in the digital currency, by choosing to invest in such an investment vehicle, you are holding shares of a fund or trust promising to hold the specified currency on your behalf.

And as with other assets, you can also hold Bitcoin and other digital currency via an IRA-owned single-member LLC. Your IRA would own the LLC instead of the digital currency, and all buying and selling would be conducted by the LLC instead of the retirement account.

As a passive, non-discretionary custodian, Kingdom Trust does not sell or provide investment advice, but we will custody client accounts holding digital currency, provided they adhere to SEC regulations. Investing in digital currency is a new concept and remains very speculative, involving a high degree of risk. Kingdom Trust recommends interested investors speak with a team of professionals well-versed in the technology and in holding it inside a retirement account before proceeding with any digital currency investment.