Wrapped Bitcoin IRAs have many advantages, including tax-saving benefits, 24/7 trading, and diversification.
While many people have heard of Bitcoin, one related cryptocurrency is not as well known. Wrapped Bitcoin (WBTC), is a tokenized version of the leading cryptocurrency built on the Ethereum blockchain. Wrapped Bitcoin gives bitcoin representation on the Ethereum blockchain. It got its name “wrapped” because users are essentially taking Bitcoin from the Bitcoin blockchain and wrapping it on the Ethereum blockchain, giving it more use cases.
Introduced in 2019 to bring Bitcoin to the Ethereum network, Wrapped Bitcoin is fully backed by actual Bitcoin and “stored by regulated custodians.” It allows token holders to access all that Ethereum has to offer in an attempt to potentially amplify returns.
Wrapped Bitcoin adheres to Ethereum’s ERC-20 token standard, which makes it compatible with Ethereum-related functionality, such as the decentralized finance (DeFi) market. DeFi is where activities such as lending and borrowing can be completed on the blockchain without the need of an intermediary like a bank. This is made possible thanks to smart contracts, which are agreements that are automatically executed on the blockchain when certain preset conditions are met.
Similar to stablecoins, which are pegged to another asset such as the U.S. dollar, Wrapped Bitcoin’s value is linked by a 1:1 ratio to its larger peer, Bitcoin. This means that its value is similar to and affected by the leading cryptocurrency, Bitcoin. The wrapped nature of the token allows users to conduct seamless transfers across the Bitcoin and Ethereum blockchains.
To understand what Wrapped Bitcoin is precisely, it helps to understand its use of it, Bitcoin suddenly becomes relevant in DeFi. Users can potentially earn a yield on the asset via decentralized apps such as Yearn Finance.
When the bitcoin market is in a downturn, using in DeFi is a way to potentially generate returns on an asset that might otherwise be losing value. However, that’s not to say that DeFi protocols don’t have risks. They do, least of which include the lack of a formal, regulatory framework governing these protocols. This article will serve as a guide to explain Wrapped Bitcoin. We will compare Wrapped Bitcoin vs. Bitcoin as well as explore the possibility of you adding Wrapped Bitcoin crypto to your self-directed retirement account.
Wrapped Bitcoin is basically Ethereum’s version of Bitcoin. It exists to make Ethereum applications accessible to Bitcoin via an ERC-20 token that’s backed by actual Bitcoin reserves, opening up additional possibilities to investors. You can also think of Wrapped Bitcoin as a bridge between the Bitcoin and Ethereum networks, opening up a door to Bitcoin investors that would otherwise be closed, considering Bitcoin and Ethereum run on separate blockchains. Wrapped Bitcoin trades under the symbol “WBTC”. As of February 2022, there was nearly $11 billion in WBTC on the Ethereum blockchain. There is also a WBTC supply on the Tron blockchain, worth just over $4 billion as of the same month. Wrapped Bitcoin has a circulating supply of around 283k as of May 2022. However, its total supply is unclear. In May, 2022, Wrapped Bitcoin was named among the top 16 cryptocurrencies based on market capitalization.
One of the critical functions of wrapped tokens like WBTC is introducing greater liquidity to cryptocurrency exchanges. Bitcoin is already a massively liquid market, and delivers that very liquidity to the Ethereum network and its DeFi applications. Additionally, Wrapped Bitcoin introduces the aforementioned smart contracts, a popular product on the Ethereum blockchain, to the Bitcoin ecosystem. With the basics of Wrapped Bitcoin explained, let’s move on to what makes this ecosystem tick..
Bitcoin is a tried-and-true cryptocurrency. Since 2009, its mettle has been tested and adopted by various businesses and governments worldwide. Wrapped Bitcoin does not have as long of a trading history as the cryptocurrency it is pegged to. Furthermore, while it’s key to note that it’s not the only wrapped token, it has earned a reputation as the most popular one, comprising over 80% of the wrapped token market as of early 2022.
While the price is similar, there are several differences between Bitcoin and Wrapped Bitcoin. For instance, more major businesses, such as AMC Entertainment, Starbucks, and Home Depot, have begun accepting Bitcoin as payment, either directly or through some third-party application. Wrapped Bitcoin has not reached that same level of mainstream adoption.
Bitcoin’s supply is capped at 21 million coins. This crypto’s deflationary nature is one of Bitcoin’s greatest features, as it means that the supply/demand dynamic will remain in check. As previously mentioned, Wrapped Bitcoin’s supply is unclear.
Critics argue that Wrapped Bitcoin is a centralized cryptocurrency considering that the custodian controls its supply. On the other hand, Bitcoin is decentralized in nature, and there is no central party governing the release of tokens. Instead, the lion’s share of network participants decides this.
Where Wrapped Bitcoin shines is in its compatibility with decentralized apps on the Ethereum blockchain. Investors looking to diversify their investment portfolio and potentially amplify returns, whether Bitcoin is in a bull or bear market, could look to put their WBTC to work in a DeFi app. When Bitcoin’s price is in the doldrums, the Wrapped Bitcoin price might also be, but at least token holders could use their funds to attempt to earn returns in the DeFi market, which have been known to reach the double-digit percentage range.
To hold the Wrapped Bitcoin crypto, it is required for users or token holders to go through the know-your-customer (KYC) and anti-money-laundering (AML) processes, which introduces regulatory components into this ecosystem. KYC guidelines are enforced by FinCEN and OFAC, while AML rules are enforced by the U.S. Department of the Treasury. While this does not rule out the possibility of a security breach, thanks to the role of partners, like BitGo it may be “much less severe as all tokens will still be backed up by custodians,” according to the Wrapped Bitcoin whitepaper, which also warns that sensitive information on users could still be leaked.
You can buy Wrapped Bitcoin through some of the major centralized cryptocurrency exchanges, and decentralized exchanges available. The process generally involves converting the Bitcoin you already own into Wrapped Bitcoin. You could then store your WBTC tokens in a digital wallet.
Alternatively, a tax-advantage option for you to purchase Wrapped Bitcoin is to purchase it in your IRA through Bitcoin IRA. We will get into more detail about how to do so below.
Historically, the Wrapped Bitcoin price tends to follow the leader, Bitcoin. Even though we compared Wrapped Bitcoin vs. Bitcoin, there is no denying the price proximity. As of May 2022, the Bitcoin price’s all-time high is close to $69,000. The Wrapped Bitcoin price has climbed as high as $70,643.
The price predictions for Bitcoin stretch as high as $1 million per coin and beyond. So, let’s explore more details.
Experts forecast that the Bitcoin price could be trading at over $100,000 per coin in 2025. That’s the year after Bitcoin experiences its next halving event in which the reward that the BTC miners receive for completing blocks on the blockchains is cut in half.
Investing in the Wrapped Bitcoin crypto with Bitcoin IRA* simplifies the process for you. Instead of various steps needed for buying on an exchange and storing your coins in a wallet, you can invest in Wrapped Bitcoin with Bitcoin IRA through their convenient, user-friendly platform that is available 24/7 via web and mobile app. Plus, you may rest assured knowing that you will be joining 100,000-plus investors who trust Bitcoin IRA as their trusted and secure cryptocurrency IRA platform. Once you’ve opened an account, you can easily buy and sell crypto around the clock, whenever and wherever best works with you and your schedule.
With this exploration on Wrapped Bitcoin, perhaps you may be ready to add this cryptocurrency to your self-directed retirement account. Investing in crypto has never been simpler, thanks to Bitcoin IRA. Regardless of whether you’re new to crypto investing or are a seasoned crypto investor, you can reach out and speak with a Bitcoin IRA specialist to get all your questions addressed.
Track crypto prices and your portfolio in real-time on our unique dashboard, set up custom price alerts and continue to learn more about cryptocurrencies through our vast educational resources, including videos. To create a Bitcoin IRA with Wrapped Bitcoin, follow these three steps: