Spot Bitcoin ETFs: A Game-Changer for Retirement Planning

Retirement savers eager to dip their toes into the world of Bitcoin may soon have an opportunity to do so without directly owning the cryptocurrency. U.S. regulators have until January 10th to decide whether to approve a spot Bitcoin exchange-traded fund (ETF) that would track the real-time price of Bitcoin. If approved, this could pave the way for retirement savers to gain more access to crypto as an asset class.

Major asset managers, including BlackRock, are currently working on getting their versions of a spot Bitcoin ETF approved. While it remains to be seen how popular these offerings will be with retail investors, industry experts predict that retirement savers will likely have more options available to them through their company-sponsored 401(k) plans, solo 401(k)s, or self-directed IRAs.

According to Chris Kline, chief revenue officer of Bitcoin IRA, which allows retirement savers to invest in over 60 cryptocurrencies within retirement accounts, approving spot Bitcoin ETFs would be a significant step toward mainstream adoption of Bitcoin and cryptocurrency. He believes it would give investors more options for diversifying their portfolios.

The interest in Bitcoin is currently high, with the cryptocurrency up over 150% this year. Competition for Bitcoin ETF spots has also contributed to the rise in Bitcoin’s value. However, Bitcoin remains a highly volatile asset class, with skeptics and true believers.

In recent years, many major pension funds have allocated funds to crypto as an asset class. A study by the CFA Institute revealed that 94% of state and local pension plans have some exposure to crypto. Fidelity Investments, the largest 401(k) plan administrator in the U.S., added a Bitcoin fund option to their offerings in 2024, allowing employees comfortable with cryptocurrency risks to investing in Bitcoin.

Currently, options to own crypto within retirement accounts are limited due to the cautious approach of many employers following guidance from the U.S. Department of Labor. However, if spot Bitcoin ETFs are approved, more providers are expected to offer them, increasing options for retirement savers.

If the Securities and Exchange Commission (SEC) permits spot Bitcoin ETFs, employers may hesitate to adopt them in their 401(k) plans. While some industry experts believe that companies will eventually offer them, they anticipate that it will be driven by employee demand rather than employers voluntarily including them.

Market-leading custodians like Schwab and Fidelity do not currently allow direct investment in cryptocurrencies within individual retirement accounts. However, these custodians have become more involved in the crypto market through various investments and thematic crypto funds. Other providers like Bitcoin IRA, BitIRA, and iTrustCapital offer options for retirement investors wishing to hold crypto assets in their accounts.

As for tax advantages, long-term investors who hold crypto through a retirement account can potentially avoid taxes at the time of sale. Roth IRAs, in particular, offer tax-free withdrawals if certain requirements are met. In contrast, capital gains may apply when crypto is sold in a regular brokerage account.

For those whose employers do not offer spot Bitcoin ETFs in their 401(k) plans, opening an IRA with a provider that offers them could be an option. Experts believe that spot Bitcoin ETFs will be commonly recommended for retirement accounts due to the expected returns they could produce over time.

While the approval of spot Bitcoin ETFs could open the door for retirement savers to gain exposure to crypto, it remains to be seen how investors will receive these offerings and how the market will evolve in response. The decision by U.S. regulators is eagerly anticipated and could significantly impact the accessibility and acceptance of Bitcoin as an investment option.