Eric Satz is co-founder and CEO of Alto, an alternative asset platform that allows individuals to invest in alternative assets, using both retirement and non-retirement funds.

When cryptocurrencies first launched, they were a small, alternative market operating primarily outside the financial system. Investing in cryptocurrencies meant both buying an unproven asset that represented the promise of a new form of currency and navigating significant technological hurdles and risks.

Today, crypto has become more mainstream. It’s significantly easier to trade and store cryptocurrencies, and in some parts of the world, it is becoming a popular form of payment. Crypto has also proven to be an incredible investment over its lifetime, and truly diversified portfolios should include crypto, especially in individual retirement accounts (IRA) that are long-term investment vehicles with significant tax advantages.

The evolution of crypto: from alternative to mainstream
When Bitcoin came out in 2009, each coin was worth a tiny fraction of a penny. It was fair to question whether this market would ever amount to anything. By 2013, Bitcoin’s value rose to more than $1,000. Developers eventually launched other cryptocurrencies, including Ethereum, Litecoin and Ripple.

Despite the fortunes made by early investors, and maybe because of them, leaders in traditional financial markets were skeptical of crypto’s value and need. J. P. Morgan’s CEO Jamie Dimon famously called Bitcoin a fraud in 2017. But that didn’t stop the flow of investors that began to pour into the market. By the end of 2023, there were roughly 580 million crypto investors, according to Crypto.com. Most major brokers have started offering crypto investing in some capacity to meet this demand.

In 2024, the Securities and Exchange Commission (SEC) approved the creation of Bitcoin and Ether exchange-traded-funds (ETFs), providing investors another way to trade crypto. Even J.P. Morgan delved into the blockchain and crypto world, having created a system for clients to transfer funds using its own stablecoin, JPM Coin. 

With these important industry moves, crypto is an integral part of the financial system and can no longer be ignored by investors.

The unique liquidity of crypto
Crypto is uniquely liquid relative to the traditional public market assets like stocks and bonds. Cryptocurrencies do not trade directly on market exchanges like the NYSE or Nasdaq. Instead, crypto assets are traded all over the world and investors can buy and sell crypto 24/7 on crypto-specific exchanges across the globe, regardless of when stock markets operate. This kind of on-demand liquidity is unmatched

Portfolio diversification
Crypto increases portfolio diversification, allowing investors to reduce portfolio volatility while improving returns by spreading their investments across asset types. 

So far, crypto has shown a low correlation with stocks. In other words, their historical price movements have been mostly independent of each other. Crypto gains may balance losses in the stock market and vice versa.

Assuming these price trends continue, adding crypto to a portfolio may increase resilience and generate steadier long-term returns.

Benefits of crypto in IRA accounts
Investors can access additional tax benefits by investing in crypto through an IRA. An IRA delays taxes on capital gains as long as the money stays in the account. You can receive higher after-tax returns compared to trading crypto in a regular brokerage account, where investors owe taxes on gains each year even if you reinvest the proceeds. 

With a Roth IRA, the investor can withdraw gains tax-free starting at age 59 ½, assuming the account is at least five years old. Should crypto continue growing at the same rate, investors could potentially benefit from years of sizable gains, tax-free.

Choosing the right IRA platform
Traditional IRAs from large brokerage firms allow for investments in crypto ETFs. To invest directly in cryptocurrencies, investors require a self-directed IRA. A self-directed IRA allows a broader range of investments, including crypto, real estate, precious metals, venture capital and hedge funds.

Large established brokers do not offer self-directed IRAs: They are only offered by custodians that specialize in running these types of accounts.

When comparing self-directed IRA custodians, investors ought to consider their fees for trading and storing crypto, their security measures for digital assets and the user experience. 

New potential for investors
Most people now believe that crypto is here to stay. As the market continues to mature, it will become easier for investors to tap into its liquidity and diversification benefits — which is critical for retirement plans.

Like any investment, crypto carries the risk of losses and future performance is not guaranteed. But after a 15-year track record of strong returns, it makes sense to stop treating crypto as an alternative asset and instead consider it as a mainstream investment option for a retirement portfolio.