New Money: Issue #14
At Digital Asset Investment Management, the licensed Registered Investment Advisor for Bitcoin I’ve been building with my partner Bryan Courchesne, we help individuals invest in Bitcoin using their 401k, IRA(Traditional, Roth, SEP and Simple) and brokerage accounts. We’ve built a model organization that is regulator vetted, transparent, and customizable to every individual that works with us.
What sets us apart from other firms and organizations in the Bitcoin industry is that we did the hard work to get properly licensed and operate in a fully regulatory compliant manner. We work with clients who want help navigating Bitcoin and Digital Assets and our flat fee model does not steal your hard-earned money through predatory and punitive setup costs or hidden transaction and trading fees. For every client, we build you a secure environment to invest safely and we NEVER have custody of your money.
I often get asked why we charge 2.5% for management and the reason is simple: We are absolutely f*cking worth it.
A single trade at most Bitcoin on-ramps like Coinbase, CashApp, Robinhood and other easy to use platforms cost you 1.99% to 2.1%. A single trade!!!!! Each additional trade 1.99% to 2.1%. For comparison, we trade at 25bps or almost 1.8% less. Do you know what you get from those platforms for that? Weak security, 2-3 day support tickets, no humans to ever talk to when you have questions, worthless sh*t coins shilled to you in email campaigns, and zero availability to invest using your retirement accounts.
Other options to invest in retirement accounts include a competitor firm called BitcoinIRA that sucks the life out of your investment through 10-15% of your initial capital and 1-5% trading fees and the GBTC and ETHE equity tickers available at most brokerage accounts that trade at 30% and 500% premiums to NAV with 4% expense fees. If you own Bitcoin and Ethereum this way, no offense but this is absolutely foolish and beyond irresponsible to yourself when you can buy 1.3x more Bitcoin and 5x more Ethereum directly. Individuals who own GBTC and ETHE to get exposure, have no idea that institutional investors are depositing BTC and ETH to the trust, creating new shares at NAV and then waiting 6 months to dump the shares in the open market at a premium to eager retail investors who have no idea they are overpaying for something that is completely detached from the underlying value. Institutional Investors are collecting free money on the back of retail investor stupidity and lack of knowledge of other available options.
Take a look at ETHE, the stock equivalent security for exposure to ETH. The price has dropped by nearly 60% since the June 4 high. Ethereum is down maybe 8% but the collapse in premium is the result of the accredited investors, predominantly hedge funds, liquidating their holdings after their mandatory lock-up period for new placements into the trust came to an end. They are legally fleecing unsuspected retail investors.
Do I sound grumpy and salty? Well, I kinda am.
It bothers me that exchanges and on-boarding ramps treat unsuspecting new investors like ATMs and it boils my blood that regulators allow retails investors to get hosed using these terrible products. On a personal level, it frustrates me that I haven’t done a better job letting people know we exist, but it confuses me that individuals push back on our 2.5% management fee and then go pay more punitive costs elsewhere because it’s embedded or hidden inside the product or user experience.
At the end of the day, if you want to invest in Bitcoin, you have a lot of options available to get started, but buyer beware. If you desire a personalized experience where you have a legally licensed advisor to answer questions or speak to 24/7, transact at institutional below market rates, get educated, learn and be empowered, have cutting edge security, investment recommendations, earn yield, be able to utilize retirement accounts and have the ability to optimize your investment and experience all for the same cost as a single trade at platforms where you get nothing else, send us an inquiry here or shoot me an email at firstname.lastname@example.org and let’s talk.
We can help you:
roll over a 401k from an old job to invest in Bitcoin
transferring or creating a Traditional IRA to invest in Bitcoin (SEP, Simple, Roth)
executing a back door Roth IRA conversion
managing 100% of your assets and building you a Modern Portfolio with Bitcoin exposure
partnering with your existing Financial Advisor to invest in Bitcoin
employer-sponsored 401k plans with Bitcoin (this is a new product that we are rolling out: If you are a small business owner and want to offer it to your employees or work at a company and want your employer to offer 401k plans that allow you to invest in Bitcoin please contact me email@example.com)
yield generation (invest in Bitcoin and earn 4-9% yields while you wait)
cash brokerage accounts with Advisor access
creating a Self Direct IRA for a one-time fee and using our institutional rates to trade
learning and research about Bitcoin and other digital assets
avoid punitive trading and transaction costs that you will get charged at other platforms
Even if you are considering dipping your toes in Bitcoin and Digital Assets, at the very least, my partner and I will take the time to evaluate your options and be extremely transparent with you to put you in the best place to succeed. We are of course fiduciaries and legally required to do so but I just want to see people get off zero and do it in the way that’s best for them. I can’t say the same for other people and organizations in this industry and although it can appear easier to buy Bitcoin at Coinbase or some other platform, consider the details and whether or not you’re actually getting any value for using them and the expensive fees they charge.
Lastly, if your financial advisor at JP Morgan, Morgan Stanely, Raymond James, Merrill Lynch, Fidelity or wherever they are, are not offering Bitcoin or having conversations with you about getting off zero and having at least 1% exposure then they are being extremely negligent, lazy and/or incompetent. We’re long past the easy criticism that Bitcoin is some fringe investment. Not only is it the best-performing asset of the past decade but its inclusion in every portfolio not only brings diversification benefits but it builds portfolios with higher absolute and risk-adjusted returns.(see our Modern Portfolio analysis).
The ROTH IRA is the God Account for Bitcoin
Which brings me to the Roth IRA and why its the greatest vehicle to invest in Bitcoin. I often refer to the Roth IRA as the God Account for Bitcoin. Why? Because a Roth IRA allows you to invest tax-free for the rest of your life. For an investment like Bitcoin that has an asymmetric return profile, this offers incredible long term benefits to avoid taxes along the way and on the way out.
According to the IRS, Bitcoin is treated as property. However, like-kind transactions are considered taxable events. This means if you hold Bitcoin in regular brokerage accounts, investing in Bitcoin and swapping some of it to buy Ethereum or some other digital asset(equities, bonds, real estate will all be tokenized/digitized one day) or if you decide to sell Bitcoin one day in the future will create huge taxable events. You can bet the IRS will be paying attention.
Roth IRAs are funded through contributions on an after-tax basis. However, keep in mind that your eligibility to contribute to a Roth IRA is based on your income level. If you file taxes as a single person, your Modified Adjusted Gross Income (MAGI) must be under $137, 000 for the tax year 2019 and under $139,000 for the tax year 2020 to contribute to a Roth IRA, and if you're married and file jointly, your MAGI must be under $203,000 for the tax year 2019 and 206,000 for the tax year 2020. The maximum total annual contribution for all your IRAs combined is:
$6,000 if you're under age 50
$7,000 if you're age 50 or older
The ability to shield taxes and never pay anything to the IRS on transactions or gains ever again is extremely underappreciated by most investors, especially if you believe taxes will be going up in future years.
Because of the income limits, individuals who make over $139,000 are ineligible to make contributions to a Roth on a yearly basis. However, they can contribute to a Traditional IRA on a pre-tax basis then convert it to a Roth IRA through the “backdoor”. The Backdoor Roth Conversion is a very attractive option for anyone who is considered ineligible, has a traditional IRA, 401k or SEP, and wants to convert their retirement vehicle to a Roth and grow their money tax-free. Both Traditional and Roth IRAs can receive contributions of up to $6,000 for 2019 until July 15.
Let’s Examine the Data
Let’s look at a 401k/Traditional IRA vs a Roth IRA for Bitcoin. The difference between the two vehicles is paying taxes now or later. One of the considerations we evaluate with clients is whether or not they should convert their 401k/Traditional IRA to a Roth through the back door. In order to do this, one needs to pay taxes upfront/today in order not to pay in the future. Does this make sense? Well, that depends on several factors unique to each individual:
your current tax rate
a realistic estimate of your future tax rate
how many years until retirement
rate of return/opportunity cost for investing taxes paid in the market until retirement
a guesstimate of the future price of Bitcoin
Let’s examine someone investing $10,000 in Bitcoin through a Traditional IRA and analyzing whether they should do a backdoor conversion to a Roth IRA. In this example, we’ll use someone with 25 years to retirement, 40% in current taxes, 45% in future taxes, and a market return of 7% a year as an opportunity cost.
In the chart below, the Roth and Traditional IRA account values are represented by the black and orange lines with the total account value plotted on the left y-axis against the future price of Bitcoin on the x-axis. The blue bars represent the excess return (right y-axis) of the Roth IRA vs the Traditional IRA based on potential future prices of Bitcoin.
If you look at the data below, the breakeven point for the future price of Bitcoin for this transaction to make economic sense is somewhere around $57,500 per Bitcoin. If you believe that the future price of Bitcoin is likely to far exceed $57,500 at some point in the future before you retire, then taking the tax hit today to convert your 401k or Traditional IRA to a Roth IRA would be extremely beneficial. If you believe like most Bitcoiners, that Bitcoin will become a Store-of-Value and potentially global money and the future price will far exceed $100k and potentially $1mm/BTC in the future, then investing Bitcoin in a Roth IRA would be an exceptionally smart transaction for simply paying a small amount of tax today to prevent paying taxes(whatever that rate might be) in the future.
For anyone curious about the inputs and how the upfront taxes, future taxes, and opportunity costs all flow through, I break out the data and calculations in the following way. If anyone has questions feel free to leave a comment or contact me.
As you can observe, converting your 401k and/or Traditional IRA can have exceptional benefits if you have a strong opinion about the future price of Bitcoin and believe taxes are headed higher in the future. If this transaction is something you are interested in or want to talk about, please contact us here.
61% of Bitcoin hasn't moved in over a year. That's an all-time high. This is extremely bullish and illustrates the strength of the Bitcoin investor base as long term HODLers.
Wanna understand why HOLDers are so important to the success of Bitcoin? Read Dan Held’s “HODLers are the Revolutionaries”. I promise you will learn something.
The US just reported it’s highest COVID-19 daily case count ever. This can be described as nothing more than pure failure. I don’t know who needs to hear this and you can do what you want, but you should probably avoid large crowds, bars/restaurants, gyms, etc. Just because things are open doesn’t mean you need to risk your health for consumption. I’m prepared to take the “L” for 2020 and suck it up until there’s treatment or a vaccine.
Wanna understand why the cases continue to spike and the United States is absolutely sh*tting the bed in terms of preventing the spread of COVID-19? Look no further than two examples below. People are absolutely stupid and ignorance kills. It’s honestly hard to believe our country is this poorly educated and wearing masks has become some sort of political statement when dealing with an invisible pathogen. When foreigners refer to Americans as stupid, maybe we should believe them.
If you want to read about how f*cked up our healthcare system and its corresponding lobby, click in the tweet below and read the thread by this gentleman. I sincerely hope this man spends the rest of his life doing everything in his power to scream, be loud and be heard by anyone that’ll listen to help reverse the damage and lack of humanity he and his colleagues have had in the name of profit over people. 👇🏼👇🏼
What I am Listening to (Podcasts):
The four preconditions for a reformation, and how they apply today
Why inflation is becoming a more significant threat today
How bitcoin memes function like unifying doctrines from past revolutions
Why millennials could be the Greatest Generation 2.0
David Portnoy (@stoolpresidente) of Barstool Sports.
Follow this man on twitter if nothing more than for entertainment value. He’s been day trading for the past couple of months, but in the process, Dave Portnoy is single-handedly exposing the sham of the stock market and central bank policy. I’m not sure he even knew what he was doing when he started, but he does now. Younger investors and even veteran investors are taking note of his refreshing, nothing sacred approach. He will likely cause a lot of people that follow him to lose money but he is helping people wake up and realize what a joke our money has become due to central banks printing it in infinite amounts to hold up the stock market.
Indeed. Bitcoin 🚀.
What I am Reading
Mark Zuckerberg is the biggest oligarch in the history of mankind - Scott Galloway
The American Press Is Destroying Itself - Matt Taibbi
A Superior Financial System - Chris Burniske
Trust No One - Michael Krieger
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