By Brett Arends
If you’re going to buy bitcoin /zigman2/quotes/31322028/realtime BTCUSD -0.02% , for heaven’s sake do it in your individual retirement account.
I’m not saying you should or shouldn’t buy the digital virtual currency, which is booming once again. I’m just saying, if you do decide to buy it, as an investment or a trade, do it in your IRA or some other tax-sheltered account. (A growing number of these let you own bitcoin).
That way you can ride the latest mania, maybe make a quick profit—and not have to pay any tax when you cash out.
The IRS treats bitcoin as “property,” meaning any gains you make outside of a sheltered account will count as ordinary income.
Bitcoin has risen 70% since the start of October and is nearly at record highs. It’s more than doubled in price in a year. Ah yes, the boom times are back. The bitcoin fanatics are reappearing after their three year hibernation. Cryptocurrency “experts” will soon be cropping up on cable TV, if they aren’t already.
Traders riding this high risk bandwagon are making out like bandits…for now, anyway.
And then there’s Thanksgiving.
It was Thanksgiving three years ago that sent the cryptocurrency mania into orbit. Relatives who’d made money from bitcoin passed on the news to other relatives over the turkey, and explained what bitcoin was and how it worked. The other relatives went home and joined in. Bingo.
Bitcoin tripled in about a month.
Could it happen again this time around? Sure. Why not? Nobody knows.
You could make a quick profit. There again, you could make a quick loss.
But if you want to play and keep down your risks, just play with the house’s money.
It’s an old Wall Street trader’s trick, explained to me by an investment analyst years ago early in the dot-com bubble.
Start by buying, say, $1,000 worth of bitcoin (or $100, or $100,000, or whatever suits your budget). If it rises, and you start to show a profit, buy a bit more. Each time it rises, and your profit grows, buy a bit more…and a bit more…
But do not buy if it starts falling. And cash out if it falls to a trigger point you set in advance, such as 20% from the peak price. Be willing to take a loss and walk away.
Ride the train while it keeps going. Just remember to get off before it hurtles over the cliff.