Retirement Funds Feature Bitcoin

Trevor Gerszt has spent much of his career selling hard assets to investors, but now he’s exploring the intangible market of virtual currencies. Gerszt’s business Goldco in Woodland Hills sells gold and silver coins, often with the sales pitch that such assets provide security in the form of a physical reality that stocks, bonds and annuities do not. While at first it might seem his move into cryptocurrencies contradicts that philosophy, if gold and silver are an alternative to traditional investments, then perhaps cryptocurrency is an alternative to that alternative. “The world is changing,” Gerszt said. “Digital currencies are the wave of the future.” Through the Goldco subsidiary CoinIRA, Gerszt structures a retirement account containing digital currencies such as the well-known Bitcoin, but also others including Litecoin, Ripple, Ethereum and Ether Classic. CoinIRA acts primarily as a facilitator in setting up the account and as a digital wallet to hold the currency that comes in bundles of $25,000, $50,000 and $100,000. The company also finds an exchange to obtain the currency. CoinIRA charges a one-time fee of 10 to 15 percent of the investment to set up the account. As the oldest of the cryptocurrencies, Bitcoin is often used as a generic term when referring to digital money. Bitcoins first became available in 2009 but it wasn’t until a few years later that they grew in popularity. The coins have since appreciated in value. A $200,000 investment in 2011 would be worth more than $1 million today, Gerszt said. This year alone, the value of Bitcoins has increased 300 percent while overall digital currencies have gone up by 440 percent, he added. Tipping point? Popo Chen, chief executive of Cobinhood, a cryptocurrency exchange based in Taiwan, credited the increase in value to many people believing in a decentralized financial system in the future powered by blockchain technology, a public ledger accessible to digital currency users that records all transactions. “As more people are convinced to the future of cryptocurrency, the demand for it rises, and so does the market value,” Chen wrote in an email to the Business Journal. Gerszt, 36, said that he looks at digital currency in the same way people did in the early days of the internet when they were distrustful about entering their credit card information to make a purchase. At some point there came a change and now it is common to use a credit card in e-commerce purchases. That tipping point has now been reached with cryptocurrencies, he believes. “People are getting to the point where they might not understand the technology side of it but they understand it is here to stay and it has begun to crossover into the mainstream,” Gerszt said. Chen said he believes in the future of cryptocurrency and its ability to shape the economy. After all, Australia and Japan have officially recognized Bitcoin as legitimate currencies and Japan is launching a new national digital currency, J-Coin, in advance of the Tokyo Olympics in 2020, Chen wrote in his email. “The trend is unstoppable and the world economy is gradually migrating from fiat-based to cryptocurrency,” Chen explained. “We believe that in the near future, you can easily buy a Coke by (Cobinhood) or other cryptocurrencies in a convenience store.” In 2014, the Internal Revenue Service issued its guidelines on digital currency, including allowing it as investments in self-directed individual retirement accounts. It was after those guidelines were issued that Goldco began to test the market to see if clients would be drawn to that type of investment, Gerszt said. This was done with no marketing but just telling the clients it was available, he added. The response was huge and made the company realize that its clients were yearning for something different in an investment, Gerszt said. “That ‘something different’ presented itself as digital currency,” he added. This month CoinIRA will launch a marketing campaign that includes online, television and radio ads. A two-page ad appeared in the 100th anniversary issue of Forbes magazine featuring former Congressman and three-time presidential candidate Ron Paul, identified as the “chief ambassador” for Goldco. While Paul is not necessarily an advocate for Bitcoin or other digital currencies, the idea of a decentralized currency fits in with his libertarian views, Gerszt said. “He is definitely not someone who is going to say put all your money in Bitcoin because it’s going to be worth $20,000 a Bitcoin in the future; that is not his take on it,” he added. No central bank Cryptocurrencies differ from paper and coin currency in ways other than by lacking a physical object. No central bank holds sway over it and no government has control over it. Transactions occur between peers. Creating new bitcoins occurs in a network through a complex mathematical process called mining. This process provides privacy and a strong fraud prevention system, Gerszt explained. “This method keeps a bank from just dumping a new set of bitcoins into the network,” Gerszt said. “Unlike other currencies, there is a built-in method to prevent debasement; you cannot just create bitcoin out of thin air.” Because there is a limited number of coins in digital circulation, the laws of supply and demand come into play. If the current pattern continues, then today’s supply will result in prices continuing to skyrocket, Gerszt said. But what he foresees happening is that investors will get only fractions of bitcoins and that owning a full bitcoin will be rare. “I would rather have my few bitcoins today than have decimals of bitcoins five or 10 years from now,” Gerszt said. Chen, of Cobinhood, said that investing in cryptocurrency is no different from investing in traditional financial products. The market is influenced by international events, government policies and industry news. As with any investment, there are risks involved, he added. “The cryptocurrencies market is very volatile, so traders should pay more attention to the market trend,” Chen wrote in his email. Gerszt agreed on the volatility issue and said for that reason he does not recommend to clients they invest in cryptocurrency for the short term. There is a trend right now among investors of buying digital currency, selling it for a profit a few months later and taking the proceeds for another investment. “That is new to us,” Gerszt said. “We are not used to in-and-out trading.” Investing in a retirement account allows a client to keep digital currency for as long they wish until they want to convert it back to fiat, or printed, money. The beauty of such a setup is that it’s all done within the safety of the IRA and the funds never leave that account. To invest, fiat money is transferred from the account to a digital currency exchange, and once received the cryptocurrency is transferred to the IRA. It process works in reverse for divestment. “I do see it as a bargain right now,” Gerszt said of digital currency. “If you compare it to where it was in 2013, you’ll feel you missed the boat. That’s not the case. There are more boats coming.”