Technological platforms in the financial industry—also known as fintech—have rapidly developed to accommodate the diverse strategies of today’s self-directed investors. The ease of transaction execution has become a point of emphasis as demand for quick access to alternative investment options continues to rise. When considering this evolving climate, it’s no surprise that one of the more obscure alterative assets has spawned arguably the greatest fintech innovation to date.
Markets for cryptocurrencies like bitcoin, ethereum, and ripple have made strong impressions in recent months. Per IRS Notice 2014-21, digital currencies are regarded as properties and are therefore permissible in IRAs, 401(k)s, and health savings accounts (HSAs). Investors are officially paying attention, though others have raised concerns over the security and reliability of digital asset exchanges. Protection measures are a matter of individual wallet providers, but a comprehensive accounting system has somewhat legitimized cryptocurrency transactions. This system is called the blockchain, and it may change the way self-directed IRA investments transpire in the future.
The blockchain is a ledger that describes every cryptocurrency transaction that has ever taken place. In doing so, it would appear to eliminate the need for bulky and corruptible accounting processes by synthesizing essential data to a single public location without threatening the security of the transactions themselves. When applied to other investment activities, the blockchain could elevate self-direction to a new level of efficiency.
As people grow tired of the tedium that comes with requesting loans from large financial institutions, more individuals and businesses have begun skipping the banks and seeking capital through private lending. Depending on the lender, terms and interest rates can remain competitive and the time from first contact to cash in hand can shrink from weeks to days. Even without the blockchain, peer-to-peer lending is almost exclusively based in fintech as investors review full or fractional debt offerings throughout the country. Introducing the blockchain to this model could optimize the process even further by providing full transparency and an even greater degree of control over transaction initiation.
Precious metals investing typically involves physical assets (as opposed to gold certificates or precious metals ETFs), so fintech has been slower to develop in this field. However, online platforms certainly exist and they’re beginning to catch the pack. Some precious metals companies have designed dashboards where clients can make deposits into a cash account and execute metals transactions with the push of a button. This allows investors to make incremental purchases at the best possible prices instead of making a four, five, or six-figure purchase in the hopes prices immediately begin to rise. As with private lending, the blockchain could revolutionize the way precious metals are exchanged while maintaining the physical nature of the asset. It may even inspire a peer-to-peer market for precious metals trading that doesn’t readily exist. Individuals can buy or sell precious metals from one another online, but available platforms can’t boast the transaction speed that the blockchain could bring.
Although full implementation may still be years away, the use of blockchain technology in cryptocurrency markets offers an exciting glimpse into the possibilities for self-directed IRA investing as a whole. Whether investors prefer publicly-traded securities like stocks or alternative assets like notes or precious metals, advances in technology will continue to define the landscape of modern business. For more information about self-directed IRAs, please don’t hesitate to contact New Direction IRA.