One legal downside of holding Bitcoin is the taxable event of exchanging it for fiat. Even if you don’t exchange it for dollars, doing a direct trade (e.g. buying a house for 10 BTC) is still technically a taxable event, even if dollars never exchange hands.
To get around this, you have two options:
- Wait until the inevitable Bitcoin-ization of the world and we are using it as legal tender
- Store it in a self-directed Roth IRA
If you live in El Salvador or Central African Republic, you already have access to Bitcoin as legal tender. That means you don’t have to pay taxes if it appreciates and you sell it or use it.
For those in the US who anticipate, but can’t yet treat Bitcoin as legal tender, a self-directed Roth IRA might be your next best option.
Disclaimer: this is not advice, but information. Talk to someone legally qualified about this strategy.
How a Self-directed IRA works
Basically, the rules are the same as an IRA. You have limits you can contribute each year, when you can access it, yadda yadda. However, unlike an IRA at Vanguard, you can choose whatever you want to invest in—not just stocks and mutual funds.
Most commonly, self-directed IRAs are used for things like private company shares, which is what Peter Thiel did.
So why not custodially demarcate some of your Bitcoin holdings within a self-directed IRA? If, long into the future, the US (as the world’s reserve currency currently) refuses to acknowledge Bitcoin as legal tender, then you can still partake in its historic gains within a legally-endorsed capacity.
I can’t make any recommendations for a service that helps you do this, but I hear about others using Mainstar Trust for exactly that.
Of course, all this is if you haven’t lost your keys in an unfortunate boating accident :'(