Menu Close

IRA Financial Trust Blog

Using a Decentralized Exchange to Trade Cryptos

Decentralized Exchange

Many cryptocurrency investors are starting to realize that there are two different type of exchanges: centralized and decentralized.  Coinbase, Gemini, Kraken, etc. are considered centralized crypto exchanges because, essentially, all information and trading data goes through a single point. Centralized crypto exchanges are believed to offer an efficient trading environment at the cost of user’s privacy and personal information.

Key Points
  • Cryptos are the hottest asset class for investors
  • Using a Self-Directed IRA to invest offers many benefits
  • One can trade on a decentralized crypto exchange with IRA funds

The cryptocurrency data gets transferred through a network including passwords and get stored on a centralized server.  Also, these exchanges can be vulnerable to attacks and have a lower degree of privacy.  However, the reason that centralized exchanges, such as Coinbase, have become the most popular way to buy cryptos for the mass pubic is because they are regulated and have made account opening and crypto trading easy.

Decentralized Crypto Exchange

In contrast, a decentralized crypto exchange is a type of exchange that isn’t operated by a central party or have a single point. In other words, unlike a centralized crypto exchange, a decentralized exchange, such as Uniswap, would not need all the information to go through a single point. In essence, a decentralized crypto exchange is kind of like a peer-to-peer network where there are many points of contact.

The most popular decentralized crypto exchanges are: Uniswap, Pancakeswap, Bisq, IDEX, and Sushiswap. For example, Uniswap is a “decentralized exchange protocol that operates on the Ethereum blockchain. The platform enables peer-to-peer (P2P) cryptocurrency trades that execute without order books or a centralized intermediary.  Currently, the transaction fee paid out to liquidity providers is 0.3% per trade.”

Can I Use a Self-Directed IRA to Invest?

We are very proud to have the industry’s best solution for buying Bitcoin and other major cryptocurrencies on an exchange in the name of an IRA or 401(k). In the Notice 2014-21, the IRS confirmed that cryptos, such as Bitcoin would be treated from a tax perspective as a capital asset, such as property, like a stock or real estate.  The sale of a cryptocurrency is not subject to tax and all gains are tax-deferred or tax-free in the case of a Roth IRA or Roth 401(k).

IRA Financial is the first Self-Directed IRA company to allow their clients to invest in cryptocurrencies, such as Bitcoin, directly via a cryptocurrency exchange without the need for a third-party broker or the use of an LLC.  Now, with the IRA Financial-Gemini partnership, investors can use their retirement funds to buy all the major cryptocurrencies directly through Gemini, one of the leading US cryptocurrencies exchange.

IRA Financial’s new cryptocurrency solution is the first to allow retirement holders to hold cryptocurrencies in an IRA directly on an exchange.   The account is opened in the name of the IRA, but controlled by you as the authorized representative on the account.  The IRA holder has 100% control over the account and can trade anytime.  Also, the IRA holder is in 100% control over his or her private keys and can hold the cryptos in a cold wallet.

crypto brochure

Do I Control my Gemini “IRAFI” Account?

Yes – 100%.  You are the authorized representative on the account and total control over all aspects of the Gemini account.  IRA Financial has no access to your cryptos held with Gemini.

Can I Control my Cryptos held at Gemini?

Yes – 100%. You are the authorized representative on the account and total control over all aspects of the Gemini account.  IRA Financial has no access to your cryptos held with Gemini.

    Self Directed IRA Info Kit

    Download Our Info Kits

    How to Trade Cryptos on the Uniswap Exchange with a Self-Directed IRA

    With the IRA Financial-Gemini partnership, you can buy and sell cryptos on your own, in the name of an IRA, for one law flat fee, and you can control the private keys.  IRA Financial is the only Self-Directed IRA provider that will allow you to use a decentralized crypto exchange, such as Uniswap, directly in an IRA without the need of an LLC. 

    IRA Financial-Gemini has made is quick and easy to use a decentralized exchange to trade cryptocurrencies. 

    1. Go to the Uniswap interface.
    2. Connect your wallet that contains the Gemini cryptos you purchased with your IRA Financial self-directed IRA
    3. Select the token you’d like to exchange from.
    4. Select the token you’d like to exchange to.
    5. Click on Swap.
    6. Preview the transaction in the pop-up window.
    7. Confirm the transaction request in your wallet.

    Can I Hold Cryptos in a Cold Wallet Personally?

    As per the Internal Revenue Code Section 408(m), only IRS approved precious metals must be held in the “physical possession” of a US bank or depository.  The Internal Revenue Code nor any IRS publication imposes a  “physical possession” requirement on the holding of cryptos in a cold wallet in the IRA owner’s personal possession.

    In sum, with IRA Financial you can now purchase cryptos in the name of your IRA and then move the cryptos off the Gemini exchange to a cold wallet you control and then trade the IRA owned cryptos on a decentralized exchange.  The benefits of a decentralized exchange is privacy, security, and cost efficiency.

    Share the knowledge

    Related Articles