Digital Currencies are generally blockchain based distributed digital ledgers with properties defined by software. They use cryptographic techniques to secure transactions and control the creation of new units. Generally, the development and operation of digital currencies occurs through a decentralized network of participants.
Digital Currencies are considered a subset of digital currencies, alternative currencies and virtual currencies. They generally do not have a physical embodiment and are not issued by a government. Digital Currencies are used primarily outside of existing banking and governmental institution, and exchanged over the Internet.
Digital Currencies may not be easily fungible or efficiently transferrable.
Digital Currencies are not legal tender in the U.S. Therefore, commercial establishments are not required to accept Digital Currencies as a means for paying or settling transactions. Technological developments in the Digital Currency space are neither stable nor predictable, as these developments are nascent, evolving, and therefore subject to rapid changes.
Financial Sophistication and Risk Tolerance:
Digital Currency investing is not recommendable for any person who cannot demonstrate the necessary financial resources–”risk capital” and “risk tolerance”–to withstand extreme volatility and loss; including a potential loss of a Customer’s entire principal investment.
Advice with Regard to Digital Currencies, Amount of Investment, and Length of Investment:
IRA Bitcoin does NOT provide any advice as to which Digital Currencies to purchase, amount of Digital Currencies to purchase, percentage of portfolio to which Digital Currencies may be allocated, or duration of the holding period.
No Fiduciary, Broker, or Agency Relationship:
Prior to conducting transactional business with IRA Bitcoin, the Customer understands and acknowledges that IRA Bitcoin is a for-profit entity whose business consists of facilitating Digital Currency transactions for a fee on behalf of Customers. Customer also understands that IRA Bitcoin neither mines Digital Currencies nor contributes to their increase in the markets supply.
Customer agrees and acknowledges that there is no additional relationship–be it principal agent, broker dealer, or fiduciary–between Customer and IRA Bitcoin beyond the transactional relationship described above.
Past Performance Does NOT Guarantee Future Results:
Customer acknowledges and agrees that past performance does not necessarily indicate or guarantees future results.
There is No Guarantee of Returns or Guarantee Against Losses:
Customer acknowledges and agrees that IRA Bitcoin has not made any statement or representation suggesting that Customer will make a profit or will not incur losses from purchasing Digital Currencies upon sale.
Customer Agrees to Assume Sole Risk of Purchasing and Selling Digital Currencies:
Customer understands that s/he is solely responsible for and assumes the full risk of the purchase and sales of Digital Currencies, and that decisions to buy and sell are based on his/her research and judgement. Furthermore, IRA Bitcoin makes no guarantee or representation regarding Customer’s ability to profit from Digital Currency transactions, nor does IRA Bitcoin make any guarantee or representation regarding the tax implications and consequences of such transactions.
Legal Implications of Holding Digital Currencies in an Individual Retirement Account
IRA Bitcoin is neither a legal nor tax professional and therefore does not provide legal or tax advice. If Customer has questions regarding the legality or regulations applying to holding Digital Currencies in retirement accounts, including specific Digital Currencies that may or may not be held in a retirement account, Customer should contact a legal or tax advisor. IRA Bitcoin makes no guarantee or statement indicating that the inclusion of Digital Currencies in an Individual Retirement Account is compliant with government regulations, or that current rules and statutes regarding this matter will not change.
Acknowledgement of Volatility:
Customer understands and agrees that the value of Digital Currencies are subject to various economic forces including but not limited to the following:
▪ Supply and demand;
▪ Actual or expected inflation;
▪ Global monetary conditions;
▪ Public and investor sentiment regarding the security and technological fundamentals of Digital Currencies;
▪ Market impact of additional supply of Digital Currencies, whether such an increase is due to newly developed Digital Currencies, new issues of existing Digital Currencies, or forked from existing Digital Currencies.
▪ Public, commercial, and investor acceptance of particular Digital Currencies;
▪ Evolving technological and regulatory developments, all of which are unpredictable.
Customer recognizes and accepts the impact that these forces may have on the value of Digital Currencies may be unpredictable. Customer understands and agrees that as a consequence of these factors, Digital Currency markets can be extremely volatile.
Digital Currency regulation is in its infancy and future regulatory change is unpredictable.
To the extent that future regulatory actions or policies limit the ability to exchange Digital Currencies or utilize them for payments, the demand for Digital Currencies may be reduced. Furthermore, regulatory actions may limit the ability of Customers to convert Digital Currencies into fiat currency (e.g., USD) or use Digital Currencies to pay for goods and services. Such regulatory actions or policies would result in a reduction of demand, and in turn, a decline in the underlying Digital Currency unit prices.
The effect of any future regulatory change on the value of Digital Currencies is impossible to predict, but such change could be substantial and materially adverse.
Thin trading volume, extreme hoarding, low liquidity and high bankruptcy risk in the market for Digital Currencies.
The market for Digital Currencies, by trade volume, is very thin. The majority of Digital Currencies may be held by a few owners or may be out of circulation. Ownership concentration is high which creates greater market liquidity risk as large blocks of Digital Currencies are difficult to sell in a timely and market efficient manner and certain participants may gain preferential treatment in order execution. The daily trading volume of Digital Currencies is only a small fraction of total Digital Currencies mined. The lack of a robust and regulated derivatives market for Digital Currencies means that market participants do not have a broad basket of tools at their disposal, making hedging difficult and keeping away many market makers that provide significant liquidity to traditional capital markets. The Digital Currency market currently lacks institutional-grade infrastructure participants which would help stabilize the market.
Digital Currencies can be subject to permanent loss due to unsecure local storage sites, malware and data loss.
Digital Currencies are susceptible to theft, loss and destruction. Destruction of the physical media housing a Digital Currency can result in a total and permanent loss of the Digital Currency from the market. While traditional financial products have various consumer protections, there is no intermediary that can limit consumer loss in connection with Digital Currencies. Digital Currencies held by Customers in their individual retirement accounts are not subject to FDIC or SIPC coverage. Customers’ investments in Digital Currencies may be subject to loss, theft or restriction on access, including as a result of loss or theft of the IRA custodian. A Customer’s or custodian’s loss of access to data required to access or use a digital currency, such as its private keys with respect to bitcoin, or its experience of a data loss could adversely affect an investment in digital currencies.
The value of Digital Currencies may be subject to momentum pricing and therefore, an inaccurate valuation.
Momentum pricing typically is associated with growth stocks and other assets whose valuation, as determined by the investing public, accounts for anticipated future appreciation in value. The price of a Digital Currency is determined primarily using data from various currency exchanges, over-the-counter markets, and derivative platforms. Momentum pricing of Digital Currencies has resulted, and may continue to result, in speculation regarding future appreciation in the value of Digital Currencies, inflating and making more volatile the price of such Digital Currencies.
The value of Digital Currencies is dependent, directly or indirectly, on prices established by Digital Currency exchanges and other Digital Currency trading venues, which are new and, in most cases, largely unregulated.
Digital Currency exchanges and other trading venues on which Digital Currencies trade are relatively new and, in most cases, largely unregulated and may therefore be more exposed to fraud and failure than established, regulated exchanges for securities, derivatives and other currencies. Much of the daily trading volume of Digital Currencies is conducted on lightly capitalized, unregulated, unaudited and unaccountable exchanges located outside of the United States where there is little to no regulation governing trading. Such exchanges may engage in unethical practices that may have a significant impact on Digital Currency pricing, such as front‑running, wash trades or trading with insufficient funds. To the extent that Digital Currency exchanges or other Digital Currency trading venues are involved in fraud or experience security failures or other operational issues, this could result in a reduction in Digital Currency market prices.
Digital Currency prices on public Digital Currency exchanges have been volatile and subject to influence by many factors including the levels of liquidity on the exchanges specifically and on the Digital Currency exchange market generally. The price of Digital Currencies on public exchanges may also be impacted by policies on or interruptions in the deposit or withdrawal of fiat currency into or out of larger Digital Currency exchanges.
These risks apply to various Digital Currency trading venues, including over-the-counter markets and derivatives platforms, which may be used by public Digital Currency exchanges. Instability in the Digital Currency exchange market and the closure or temporary shutdown of Digital Currency exchanges due to fraud, business failure, hackers, malware, or government‑mandated regulation may reduce confidence in the Digital Currency exchange market and result in greater volatility in Digital Currency prices.
The impact of geopolitical events on the supply and demand for Digital Currencies is uncertain.
As an alternative to fiat currencies that are backed by central governments, Digital Currencies are subject to supply and demand forces based upon the desirability of an alternative, decentralized means of buying and selling goods and services, and it is unclear how such supply and demand will be impacted by geopolitical events. Nevertheless, political or economic crises may motivate large-scale acquisitions or sales of Digital Currencies either globally or locally. Large-scale sales of Digital Currencies could result in a reduction in the value of Digital Currencies.
The further development and acceptance of the cryptographic and algorithmic protocols governing the issuance of and transactions in Digital Currencies, which represents a new and rapidly changing industry, is subject to a variety of factors that are difficult to evaluate.
The use of Digital Currencies to, among other things, buy and sell goods and services, is part of a new and rapidly evolving industry that employs digital assets based upon a computer-generated mathematical and/or cryptographic protocol. The growth of this industry in general, and the use of Digital Currencies in particular, are subject to a high degree of uncertainty. The factors affecting the further development of the industry, include, but are not limited to:
▪ Continued worldwide growth in the adoption and use of Digital Currencies;
▪ Governmental and quasi-governmental regulation of Digital Currencies and other digital assets and their use, or restrictions on or regulation of access to and operation of Digital Currency exchanges or similar digital asset trading venues;
▪ Changes in consumer demographics and public tastes and preferences;
▪ The maintenance and development of the open-source software protocol of Digital Currency exchanges;
▪ The availability and popularity of other forms or methods of buying and selling goods and services, including new means of using fiat currencies;
▪ General economic conditions and the regulatory environment relating to digital assets; and
▪ Negative consumer sentiment and perception of Digital Currencies generally.
“Forks” in Digital Currencies.
Digital Currencies are generally open-source projects, and although there are some influential groups of contributors in certain Digital Currency communities, there is no designated developer or group of developers who formally control open-source Digital Currency networks. Any individual can download a Digital Currency network’s software and make any desired modifications, which are proposed to users and miners on the Digital Currency’s network through modifications typically posted and shared in online forums. A developer or group of developers could potentially propose a modification to the bitcoin network that is not accepted by a vast majority of miners and users, but that is nonetheless accepted by a substantial plurality of miners and users. In such a case, and if the modification is not compatible with the dominant implementation of bitcoin network software, a deviation or “hard fork” in the blockchain could develop, and two separate bitcoin networks could result, one running the pre-modification software program and the other running the modified version (i.e., a second “bitcoin network”).
Such a hard fork in a Digital Currency’s blockchain typically could be addressed by community-led efforts to reunite the forked blockchains (for example, several prior forks of bitcoin have been resolved successfully). However, a Digital Currency network fork of this kind could materially and adversely affect the perceived value of a Digital Currency as reflected on one or both incompatible blockchains. In the worst case scenario, a Digital Currency’s hard fork could harm the sustainability of that Digital Currency network’s economy. Additionally, a Digital Currency’s hard fork will decrease the number of users and miners available to each fork of the blockchain as the users and miners on each fork blockchain will not be assessable to the other blockchain.
Novel and Innovative Digital Currency Risk.
Digital Currencies are a relatively new technology. There are currently hundreds of different Digital Currencies trading across the world, and new forms of Digital Currencies are in development. While many of these Digital Currencies operate in a similar manner and are subject to the risk factors presented herein, each Digital Currency (e.g. bitcoin, ether, Ripple, Litecoin, Dash et al.) is created, operated, exchanged, and settled according to different computer codes and policies. The risk factors presented herein represent some but not all risks of investing in Digital Currencies, and any new Digital Currency or any change to the way an existing Digital Currency operates could result in new, unanticipated risks.