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Where Will Crypto Head This Fall? – Fin Tech

Investors are debating whether to hold or not to hold
cryptocurrency in their IRAs or 401(k)s ahead of Wall Street’s
traditionally volatile fall season.

Farewell to crypto winter and all its discontent. But what does
crypto fall hold for retirement savers? Should they expect a comedy
or another tragedy in the coming months?

As the stock market enters the traditionally volatile fall
season, investors are facing their own Shakespearean decision on
whether to hold or not to hold cryptocurrency in their individual
retirement accounts or 401(k)s.

Crypto blue-chip bitcoin, for example, has spent the summer
being as indecisive as Hamlet, bouncing between $20,000 and $25,000
a coin. For so-called “diamond hand” holders,
bitcoin’s lack of direction for a few months is
inconsequential. In their view, the future remains golden and, if
anything, the range-bound trading over the summer can be seen as a
consolidation phase in bitcoin’s inevitable march higher.

Nevertheless, for investors who don’t see bitcoin’s 67%
swan dive from last November’s high through blockchain-tinted
glasses, there are decisions to be made. And as Wall Street traders
return home from the Hamptons and the leaves start to change,
now’s the time to make them.

That’s especially true when it comes to owning crypto in
retirement accounts, where the stakes are higher for those seeking
to enjoy their golden years without worrying about a similar
sell-off. Or, even worse, losing their digital currency to hackers,
heirs or history if it’s improperly stored.


The security of crypto wallets and exchanges has substantially
improved as blockchain technology has evolved, along with
authorities’ ability to track down digital thieves. That said,
if one’s crypto-assets are lost or stolen, there’s
generally no way to recover those funds. The speed and anonymous
nature of the currency simply make it too difficult.

The safest way to store crypto-assets is offline, meaning not
connected to the internet, which greatly reduces the threat of

“If you follow the stories of crypto theft and hacking,
many such attacks happen on crypto exchanges or wallets, which are
accessible online. The preferred method of storing crypto is when
it is physically severed from the Internet and the pathway for
thieves to access the crypto. This is known as ‘cold’
storage, in contrast to ‘hot’ wallets, which are accessible
online,” said Asher Rubinstein, partner at Gallet Dreyer &

One preferred method of storage is in a hardware wallet, which
holds the crypto-assets as well as the keys to the crypto and is
physically severed from the internet. When it comes to estate
planning, Rubinstein said people often transfer
their assets to a trustee whose role it is to care for and keep
these assets safe. This means transferring the crypto to the
trustee’s own wallet or providing the trustee with the address
of a wallet, as well as the keys.

There are professional crypto trustees
and custodians who are well-versed in holding and safeguarding
crypto-assets,” he said. “For example,
clients may set up an offshore asset protection trust and fund the
trust with crypto-assets, with the crypto transferred to a
‘cold storage’ facility deep in the Swiss Alps.”


Speaking of safeguarding assets, an investor’s heirs need to
know where the crypto is located, lest it be lost to history. Banks
and other financial institutions provide account statements and
1099 forms, so children and grandchildren often have such road maps
to the assets. However, many crypto custodians, including foreign
exchanges, don’t provide statements.

“If one’s crypto is on a small hardware device, how
will the heirs know where to find it? So when contemplating
one’s estate, one must also leave details about the crypto,
including where the crypto is stored as well as the private keys to
access the crypto,” Rubinstein said.

Moreover, crypto-assets are generally better suited to trusts
than to wills, which go through the very public process of probate.
Probate also provides a venue for a challenge to the will and its
terms, once again potentially exposing those crypto-assets for
lawyers, courts and others to see (And we all know what Shakespeare
thought of lawyers!).

Trusts avoid probate because assets are transferred to the trust
during one’s life, and after death the trust has a continuing
duration of its own.

“By using trusts, people with significant assets usually
avoid public disclosure and potential estate challenges,”
Rubinstein said. “Trusts also allow a trustee
immediate access to trust assets without having to wait for
approval and appointment by a probate court. Trusts can also
provide better asset protection for trust assets and claims against
trust beneficiaries.”

(Note to King Lear. Don’t turn over the keys to your crypto
kingdom until you’re long gone!)


The IRS considers crypto to be property, and thus crypto is
potentially subject to taxation like other forms of property. (For
the record, Shakespeare was a notorious tax cheat.) Bitcoin, like
any other form of property, is taxed when it is sold, gifted or
creates income. Therefore, crypto can be subject to income tax,
gift tax and estate tax.

“Crypto investing can be tax-inefficient, subjecting active
traders to short-term capital gains. Investors intent on owning
shorter-term or trading may want to do so in qualified accounts,
particularly Roth IRAs,” said Mark Pniak, senior director at
Choreo. “However, many traditional custodians don’t
currently support crypto, requiring investors to find a suitable
specialty IRA platform, which adds another level of

Non-fungible tokens of artwork or photographs, however, are a
different story.

“NFTs are usually bought with crypto, and the investor has
at least three potential tax events: First, the gain in value from
when you bought the crypto and exchanged it for the NFT. Second,
the gain in the NFT’s value when you sell it. Third, if the NFT
itself generates income, then each payment is also reportable and
taxable,” Rubinstein said.

Gerber Kawasaki Wealth & Investment Management was one of
the first wealth management firms to offer direct crypto exposure
to clients. However, the firm doesn’t advocate adding crypto to
retirement accounts, primarily because of the tax treatment.

“Given that crypto is not subject to wash-sale rules, we
recommend exposure in a taxable account. This allows us to help
clients potentially harvest losses and immediately rebuy, which
adjusts their cost basis with the ultimate goal of taxation being a
long-term capital gain,” said Zach Bainter, managing partner
at Gerber Kawasaki.

Bainter added that he also advises against putting digital
currencies in client IRAs due to its relatively risky nature.

“It is our viewpoint that the possibility of a crypto asset
going to zero is too much of a risk and potential setback to a
client’s retirement plan,” he said.

Rayhaneh Sharif-Askary, managing director at crypto product
provider Grayscale Investments, views crypto as an established and
proven asset class whose long-term upside is the precise reason why
it deserves to be stashed away in a retirement account.

“Historically, investors at times have realized meaningful
gains on their crypto investments, and have, as a result, paid a
lot of taxes,” Sharif-Askary said. “Investors who have
conviction around the potential of this asset class, have a more
long-term investment horizon, or are looking to make investments in
a tax-advantaged manner have turned to crypto investing through a
retirement account as a strong solution.”


Now that regulators have essentially cleared the way for crypto
in certain forms to be added to retirement accounts, financial
advisers and their clients need to decide which type to purchase
and how much to allocate to a portfolio.

Of course, that comes down to an individual’s risk tolerance
and time horizon.

For example, Melanie Jones, senior vice president at Evoke
Advisors, recommends owning the underlying currency in a low-cost
retirement account because “they are tax-efficient vehicles
with generally longer time horizons and liquidity needs.”

“It’s important to note that this asset class is still
quite speculative, and investors should have a high risk tolerance
with a willingness to accept a complete loss of an investment in
crypto,” Jones said.

Cynthia A. Pulver and J. David Jensen, co-founders of DJCAP at
Kingswood US, utilize a mutual fund structure because their clients
are much more familiar with 40 Act funds than cryptocurrencies. The
pair say this method of ownership also eliminates custody and key
issues by not requiring a wallet on an exchange. Their actively
managed fund of choice is the IDX Advisors Risk-Managed Bitcoin
Strategy Fund (BTIDX).

“The amount that should be allocated would be on a
case-by-case basis on risk tolerance and time horizon,” Pulver
said “We may allocate a small percentage in a balanced account
for alpha, generally we would allocate for growth and aggressive
growth accounts.”

Ronnie Cox, vice president of investments at Pensionmark, is
anything but a staunch advocate of putting crypto-assets directly
in retirement plans as a result of their volatility and rising
correlation to equities. However, for speculative clients
undeterred by these risks, he suggests allocations should be
limited to no more than 5% of portfolios, and the vehicle should be
as diversified as possible.

“My view is that participants would be best suited to
invest in a well-diversified fund that is actively managed by
experts in the space,” Cox said. “To take it further, I
believe that exposure should come in the form of exposure to
underlying crypto-assets, and through exposure to companies in the
crypto industry.”

Grayscale’s Sharif-Askary feels strongly that crypto
exchange-traded funds would be the best option for retirement
accounts, but ETFs for pure or spot crypto asset exposure are still
waiting for regulatory approval in the United States, having been
rejected by the SEC in June. Grayscale is still pushing to turn its
Bitcoin Trust (GBTC) into a spot bitcoin ETF. In the meantime,
Sharif-Askary said investors seeking to add crypto to their IRAs
have several of the firm’s structured products from which to

“Historically, investors have started to build their
portfolio with some of the oldest and largest crypto tokens by
market cap — bitcoin and Ethereum. With that core exposure,
we’ve seen investors build portfolios based on thematic
investing, whereby they identify sub-themes in the crypto ecosystem
that resonate with their investment philosophy and build a
portfolio accordingly,” Sharif-Askary said. “Some of the
popular sub-themes that have gained traction are smart contract
platforms, DeFi, market-weighted large cap funds and metaverse

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

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