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How IRAs can solve Bitcoin’s capital gains tax problem, enable a Bitcoin standard and push the Bitcoin circular economy forward.

In May 2021, I had just finished a pretty intense 12 months of helping take OC Bitcoin Network from a monthly meetup to a weekly meetup. In addition to the meetup work, over that same 12 months I independently consulted with over two dozen small businesses on how they could begin to implement Bitcoin payments and personally installed BTCPay Server at four brick-and-mortar restaurants as well as multiple e-commerce businesses.

All of 2020 felt like a real grassroots war to me. It made me open my eyes to the fact that the circular economy is at hand. It made me realize that Bitcoin isn’t a thing that’s happening in the future. Bitcoin is a thing that’s happening right now.

When the opportunity to come work at Choice App, a bitcoin-based individual retirement account (IRA) service, presented itself, I was obviously excited because I like talking about all kinds of Bitcoin products and my wife was thrilled too for us to get back to dual-income stacking after she had led the charge for a full year. But, I have to be honest, there was a small voice in my head telling me that I was selling out and going corporate, which caused me to think about a lot of things. It caused me to think a lot about what our path is to making bitcoin circulate as the currency in our lifetime and it caused me to open up the tactics that I had been focusing on.

Bitcoin fixes retirement accounts. This is obviously positive, but on its face can also be met with resistance and questions such as “why do I need an IRA if I have bitcoin?”

I asked myself that same question. The concepts of IRAs and retirement accounts in general feels like a vestige of the old world. To young people or old people who watched 2008 happen and who read the Bitcoin genesis block, the words do not leave a good taste.

The whole concept of a retirement account doesn’t make any sense when fiat is the base layer. This realization made me stop contributing to one a long time ago in favor of stacking bitcoin instead.

And I know from talking to lots of other Bitcoiners that some had gone this route as well, while others had taken the time to set up self-directed IRA accounts and were beginning to blur the two worlds. I didn’t hate that idea but I was just having a hard time wrapping my head around where that type of account fits into my bitcoin stacking plan.

To this day, talking about onboarding businesses to BTCPay Server and about using bitcoin as money is still a hard thing to work on. It’s work that you do for the love of the game and not for the paycheck. It’s work that you do for your kids and grandkids, who will hopefully live in a world where the Bitcoin circular economy has won and has become the standard.

Even with the advancement of Strike and the clever tool it has built, the “what about cap gains?” replies still come fast and furious on Twitter anytime the topic of circular economy is discussed.

The persistent capital gains tax problem and the IRS’s treatment of bitcoin as property instead of currency is a major hurdle between us and the Bitcoin standard.

The more I thought about the capital gains tax’s chilling factor on the circular economy, it made me start to see an overlap between what I had been doing with bitcoin payments consulting and my new role talking about Choice App.

Starting to see the overlap, I started to reinterview the Bitcoiners I knew who had been stacking bitcoin in their Roth IRAs and asking them more about it.

Certain self-directed IRAs come with what is called “checkbook control.” This means that you have a bank account and you have a checkbook and that outside of two to three prohibited transactions, you can literally invest the money in whatever you want and hold that investment and trade in and out of that investment, tax free.

Take this idea and now apply it to an IRA in which you set up an LLC or trust and then with that LLC or trust you purchase bitcoin and hold your own keys and have control over bitcoin in your own wallet. You now have bitcoin wallet control and, outside of those same two to three prohibited transactions, you’re now tax-shielded to use that bitcoin as money to make investments.

This is how the worlds collide. This is how you can begin to use bitcoin as your base currency now, in the present. and continue shifting yourself toward a personal Bitcoin standard.

Among many, one of the things that’s most interesting to me about Bitcoin mining is that the revenue is denominated in sats. There are not many ways to get paid in sats available yet, but mining is one of them, and we know that getting paid in a currency is the number one way to start thinking in that currency.

When all of the mining infrastructure and hosting is wrapped in a tax-advantaged account, you can use bitcoin as the base currency on the income side as well as the expenses side with no penalties. The simple mindset shift on this will be enough to make this a good move for a lot of people. Seeing this type of budgeting in action will make your brain progress toward a personal Bitcoin standard.

Having bitcoin in a Roth IRA creates a guarantee that those sats can circulate as unencumbered currency in our lifetime. We have no idea what the future holds, but the landscape of Bitcoin apps and services is getting better every single day.

Imagine where BTCPay Server will be when a lot of us turn 59-and-a-half years old. Imagine, no matter what the political landscape throws at us, having a third stack to be able to use in the circular economy. (I have bitcoin from regular exchanges like Coinbase and Cash App as the way I started stacking bitcoin; and then I also stack bitcoin by earning it, mining it at home and from Bisq and ATMs; my Roth IRA stack is my third.)

My Roth IRA stack doesn’t replace anything that I’ve been doing, but it perfectly compliments it and it perfectly compliments the other ways that the Bitcoin standard is being pushed forward by showing that Bitcoin is taking ground in retirement accounts while also achieving circular economy goals.

There is a long, winding road filled with what I would consider “semi-advanced Bitcoin game theory” to get there, but I can honestly say I’ve never been more excited for the state of the Bitcoin circular economy. I can see clearly different stacks of bitcoin for different things and I can feel my budget and my family’s budget beginning to get denominated in sats.

This is a guest post by Brian Harrington. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.

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