Protocol | Fintech

Bitcoin in an IRA isn’t such a crazy idea

Individual retirement accounts can hold all kinds of assets. The co-founder of Bitcoin IRA says crypto should be in the mix.

Bitcoin IRA co-founder and COO Chris Kline

Chris Kline launched Bitcoin IRA at a time when holding bitcoin and other crypto in a retirement investment account sounded like a really crazy idea.

Photo: Bitcoin IRA

Chris Kline, co-founder and chief operating officer of Bitcoin IRA, launched the service at a time when holding bitcoin and other crypto in a retirement investment account sounded like a really crazy idea.

How in the world can you invest long term in an asset notorious for wild swings in value, extreme volatility and heavy regulatory scrutiny?

Kline and his team, he admits, didn't know a lot about crypto when they started.

"We explored it," Kline told Protocol. "We spent about a year defining the components of it, what it would take for this to actually exist."

What helped Bitcoin IRA move forward were its earliest clients, who saw the promise of bitcoin and other cryptocurrencies and had a deep understanding of the finance world. Its very first client was Edmund Moy, the former director of the United States Mint, Kline said.

"These were rocket scientists that retired from NASA, IBM engineers, people of the FAANG, all the players," Kline said. "They had a different outlook on the future of finance. Most of them were long-term thinkers."

Launched in 2016, Bitcoin IRA, which is based in Sherman Oaks, California, now has 100,000 users, has processed over $2 billion in transactions and has roughly $2 billion of assets in custody. It offers most major cryptocurrencies for retirement accounts, including bitcoin, ether, cardano and litecoin.

In an interview with Protocol, Kline talked about the growth of Bitcoin IRA, the challenges it faced in its early years, and how he views the growing push for crypto regulation. Kline also shared his reaction to the biggest recent news in crypto involving two tokens that began as a joke.

This interview has been edited for brevity and clarity.

The big news in crypto is the sudden rise of shiba inu coin, which just surpassed dogecoin in total value. Both began as a joke. How do meme coins like that affect your effort to explain to new investors that crypto is a serious long-term investment?

That's a great question. We've been doing this since about 2016. Back then you couldn't get fancy. Bitcoin was about as far as you were gonna get. And that's why our name is Bitcoin IRA. When [ether] came to market and other coins over the years, most groups have had a pretty limited amount of assets available. If you were around in 2018, you saw the spike of ICOs. Paris Hilton had a coin. I got interviewed about that once on live television. That was the Wild West era.

Since then regulation has started to come in and there's a better understanding by long-standing crypto companies that customer protection is the best case.

Now you have an evolution of a new crop of digital currencies that are coming to play as new layers. How does it affect the crypto space overall?

Especially given that they've been described as jokes ...

I would say scoffed at. Now what you see is utility. You see people on Reddit and you see people on Twitter, which are large, aggregated community spaces, that are tipping each other for good content or unique concepts with digital currencies. One of which was doge earlier this year, and now, the other you've started seeing is shiba.

So there is utility to these things in a digital ecosystem.That's a component of the overall crypto evolution that's taking place. You can't take and compare a shiba to a bitcoin. Just not fair.

With dogecoin versus the shiba inu coin, are you rooting for one or the other?

No, I'm not rooting for one or the other. I'm rooting for crypto overall.

Tell me about the moment when you decided to launch Bitcoin IRA.

It was 2015 and my partners and I who created the company had been in self-directed IRAs at that time for about seven or eight years. Real estate, private equity, precious metals and land — there's a lot of people who will do a lot of different alternative assets inside of these.

It was at the end of 2014 headed into 2015 where the concept was discussed about bitcoin in retirement. At that time, most of us didn't know much about it. But we did have a singular mission in mind that we wanted to help more Americans retire.

We explored it. We spent about a year defining the components of it, what it would take for this to actually exist. We went to market in June of 2016. For me, the a-ha moment was an understanding, specifically with bitcoin, the finite capacity of it.

When you only have 21 million bitcoin that will ever be made, it's got a great divisibility factor to it. It's alluring compared to fiat or the currencies we have today around the world like the euro, the dollar, etc, especially as you've seen since 2015, an expansion of those balance sheets. More of that money put into circulation, not a contraction. Alternatives are all about seeking protection, hedge yield, whatever it may be in different places as an investor.

So that was where we said, "Let's give this a run. Let's try to put something like this together."

How did you explain it to your very first investors?

I learned probably just as much from our early adopters as they did from me. Because these were rocket scientists that retired from NASA, IBM engineers, people of the FAANG, all the players.

They had a different outlook on the future of finance. Crypto to them was an exciting concept that could be a paradigm shift in finance. That's how they looked at it. And most of them were long-term thinkers. Many of them still hold today, including our first client ever, the former director of the United States Mint, Edmund Moy. He still holds his crypto that he got then.

We were learning a lot from our clients and we still do today, obviously, because this is such a vast space of knowledge and information that is new and fresh. As far as explaining it, obviously you cannot ignore the risk. You cannot ignore the volatility. You can't ignore any of those.

Most clients come to us with a pretty decent knowledge of crypto. The reason why they're looking at their retirement is if you're in a Roth or a traditional IRA, and you really believe in an asset class as far as gains, that's a place you'd want to be for tax-advantaged investing. So that's our niche and our specialty.

Can you give me an example of an insight that you got from one of your first clients?

What we learned is that this investment behaves differently than others, and thereby requires a different approach to service maintenance, accessibility, all those things.

Back when we did the first trade, it was literally manual. Everything was manual from the documentation to the phone call to verify the details of the purchase to the forms and all those things.

What we did over the years from learning through these waves of interest and demand is that this is a 24/7 asset. It requires a different way of running your business. You can't close on Friday at 5 p.m. because crypto doesn't close on Friday at 5 p.m.

We built the first 24/7 trader for clients to log in and do trades at their discretion. And then just this past June, we created the world's first mobile application where clients are able to open accounts, fund accounts ... in the palm of their hands.

Education is key when you're dealing with something that's new. It's only 12 years old.

One of those places where we learned from our clients is the average time it takes to move money from bank to bank in the IRA space today is anywhere between about 15 to 20 days. We knew that with somebody looking at crypto today, watching it move for 15 days, waiting, that's just not going to work.

So we focused on a team that is expert at moving funds expeditiously. We've gotten it down. Our average last quarter was seven-and-a-half days. And once those funds arrive, clients can log into the same app again. They see their funds and their wallet and they can make purchases.

How do you handle the tax issues related to IRA and retirement investing?

That's what we did a little differently. When we first created this, there was always the existence of what was known as an LLC inside of an IRA. Basically, the client opens up an IRA, creates an LLC that's designed to be owned by it, and then they have control. They could go anywhere and do anything. That's where over the years, historically, in self-directed IRAs, people have gotten themselves into trouble.

For example, [in] real estate and others, there are prohibited transactions. There are prohibited people [in terms of] who can benefit from your transactions. What we designed was a custodial solution where the client could access coins that are traded and held in custody by a state-regulated, self directed IRA trust company. There's a handful out there. Ours is known as Digital Trust. It's regulated by the state of Nevada.

By using that configuration, you avoid the mistakes of going to get a wallet, holding the wallet, losing something, doing something you're not supposed to do with crypto or with other assets, that maybe will fall into a prohibited transaction.

How do you view the growing push for more crypto regulations, especially under SEC Chairman Gary Gensler?

My favorite thing is that there's a conversation happening. You kind of have this spectrum happening across the globe where in China, they're banning it altogether for the 15th or 16th time. El Salvador has adopted it as a reserve currency, even mining it with their volcanic power. Places like Brazil are eyeballing the same thing. And here in the United States, you're having a conversation about it.

Four years ago, you would have never had a Gensler who actually had knowledge and understanding of crypto enough to start having conversations about how we're going to regulate it. Regulation we applaud. It provides the guardrails that you need for client protection. As we've learned time and time again, if you don't have any of those, then that's problematic.

What was a mistake you made early on that you learned from?

Underestimating the technology that was going to be required to make this happen. That's just because we work with so many other assets that don't have the same level of demand.

So walking into it, that was something that I wouldn't say surprised us, but became a part of a lesson learned. Blazing the trail is tough because you're not always going to get it right. You're not always going to be fast enough. We were doing our manual process in 2017 when demand peaked from Thanksgiving to Christmas. That limited our clients' capacity, our capacity as a business. So we refocused ourselves and continued to grow. It's crazy how excited people get about cryptocurrency, once they're into it.

How did you handle the issue of custody, which is a big issue in crypto?

Back in 2015, when we were building this for the first time, we got together with the brainiacs over at BitGo. First thing we had to look at was the wallet configuration. How is this going to work for a custody solution?

We were the first to actually tackle that. Now it's everywhere. There's institutional custody. There's retail custody. What we have continued to focus on is enhancing that custodial experience because if you try to, like we did five years ago, drop crypto into a traditional custody solution, it works, but it doesn't work well. It's a different type of asset. It behaves differently. And since then, we've been able to grow and become a model for the industry of how custody works.

I've talked to crypto companies who say they spent a ton of money on legal services.

Anybody that really wanted to build the right kind of platform that had longevity to it had to invest early in both legal and regulatory compliance and security. So you have to spend a lot of resources on information security. In today's day and age, there's so much cyber risk out there. So you have to be at a whole other level.

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