“2018 has been testing,” says Jay Blaskey, digital currency specialist at BitIRA, a firm that enables its users to integrate cryptocurrency trading into their retirement accounts. The crash in cryptocurrency markets affected Blaskey’s firm but not in the usual sense of the word.
During the surge in cryptocurrency prices last year, BitIRA witnessed an influx of customers attracted to the prospect of trading in cryptocurrencies without accruing expensive taxes as part of the transaction. (Trading cryptocurrencies from an IRA account is subject to deferred taxes.)
Those customers were fueled by the adrenaline of fantastic cryptocurrency markets where gains multiplied in a matter of hours. According to Blaskey, there was “a lot more hype, a lot more urgency in 2017.” Last year’s euphoria gave way to nervousness and panic in the 2018 crypto bear market. “They (investors) were expecting 200% appreciation in their investment within a year, he says. “Managing those expectations was difficult.”
An Increase in Customer Count
At other investment firms and trading venues, profits and customer counts increase and decrease with the ebb and flow of cryptocurrency markets as traders exit positions to avoid losses. For example, trading volumes for major cryptocurrencies have crashed at exchanges and prominent names in the industry are taking a hit.
But BitIRA’s unique perch within the cryptocurrency investment world ensured an uptick in the number of users for its platform. Blaskey says BitIRA’s customer count jumped by 149% this year. The Los Angeles-based firm added two more coins to its offerings this year, bringing the total number of coins available to customers on its platform to eight. Customer demand was the primary driver, says Blaskey and adds that younger and more tech savvy people signed up in 2018, as compared to 2017.
This year for cryptocurrencies was marked by regulatory uncertainty as the SEC cracked down on suspect ICO offerings while acknowledging the importance of cryptoassets to the financial ecosystem.
But those pronouncements did not have a direct effect on IRA cryptocurrency trading investors because they are “shielded from” regulatory uncertainty, says Blaskey. “Outside of a retirement account, there are multiple classifications for cryptos – commodity, security etc. But once an asset is inside an IRA, it becomes like every other asset inside the IRA,” he says. (That said, regulator statements do affect prices of tokens being traded from within IRA accounts.)
IRA cryptocurrency traders are attractive to Wall Street because they are a “fixed clientele” who are invested in crypto markets for the long term, says Blaskey. To that extent, he welcomes moves by Wall Street giants to understand and invest in cryptocurrencies and related services.
This last year has been especially significant. For example, Fidelity Corporation announced a new unit dedicated to cryptoassets. NYSE owner, Intercontinental Exchange, announced a new crypto-focused company called Bakkt that will begin trading cryptocurrency futures in January 2019.
Blaskey refers to it as the mainstreaming of crypto. He says new markets will open the day that it is possible to access cryptocurrencies through Fidelity or Edward Jones accounts. “The financial institutions at Wall Street are the gatekeepers of this world and we are working with them to have access to a larger clientele,” he says.
A Cheaper Cost Structure?
While they offer tax benefits, IRA accounts that offer cryptocurrency trading are also expensive. They have an array of additional costs tacked onto the basic product that can inflate the overall annual expenses. This is partly due to absence of service providers. But the situation is changing. Last year’s burst of publicity for cryptoassets attracted developers and entrepreneurs to the industry.
Blaskey says a multiplication of services could bring down product costs and further stimulate customer demand. As an example, he says their initial custody costs with Kingdom Trust, a Kentucky-based cryptocurrency custody solutions company, were “very affordable”.
However, as cryptocurrencies gained traction last year, the custody company bumped up its charges, claiming the increase was due to a new line item called “assets under management”. “We found that very strange because no one’s actually managing those assets,” he says. Towards the end of last year, BitIRA shifted custody providers to Preferred Trust, a Nevada-based custody company. “Now costs are more manageable,” says Blaskey.
An Education in Cryptocurrencies
Even as they have gained traction, cryptocurrencies are still considered an esoteric investment. The technical details required to understand and invest in them can be daunting for first-time investors. Blaskey says BitIRA focused on educating customers this year.
While cryptocurrency trading is currently possible only through self-directed IRAs, BitIRA provides extensive information and guidance. “You don’t have to be a technologist but understanding technology will make it easier,” says Blaskey. He counts these investors as early adopters of cryptocurrencies. “They may not be in the first 3% (of investors in cryptocurrency) but they are still in the first 10%,” he says.