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Bitcoin, the Blockchain, and How Crypto is Changing Life Insurance and Estate Planning

If you do a simple search like “Bitcoin and Life Insurance” a flurry of articles with numerous concerns pop up.  Topics of interest concern things like, whether life insurers are poised to begin accepting bitcoin OR the involvement of major life insurers in either purchasing large amounts of bitcoin or increasing involvement in the fast emerging arena of assisting consumers with bitcoin (crypto) investing.

Life Insurance Companies, Bitcoin and the Blockchain

Bitcoin

One of our favorite mutual dividend paying whole life insurance companies, Mass Mutual, has a particular interest in bitcoin.  In December, 2020, Mass purchased 100 million in bitcoin for its general investment account AND acquired an equity stake in NYDIG, a leading provider of technology and investment solutions, for a bitcoin fund.

The deal between Mass Mutual and NYDIG concerning bitcoin, was predicated on what Mass sees as an the increasing involvement of cryptocurrencies in the financial landscape and the demand from financial professionals and their clients to gain bitcoin exposure.

“MassMutual continues to innovate and to lead the pack when it comes to Bitcoin,” stated Robert Gutmann, co-founder and CEO of NYDIG.

Blockchain

Other insurance companies are beginning to utilize blockchain technology, a cryptographically assured form of shared record keeping, to prevent insurance fraud and track records, file claims, and more.

For example, Metlife is reportedly using ethereum blockchain technology to add transparency and efficiency to the life insurance claims process.

Other Questions

There are many other various questions related to bitcoin, crypto and the impact on life insurance companies, such as when various life insurance companies will start accepting bitcoin (or other crypto) as payment OR companies insuring crypto holdings.

For example, Lloyd’s of London has an insurance policy that protects cryptocurrency held in online wallets.

Inflation Hedge?

On the investment front, many are concerned with how bitcoin and crypto stacks up as a hedge against inflation and, more directly, how do these ventures serve as a compliment to various strategies involving high cash value life insurance, often referred to as infinite banking.

While some consider bitcoin as future “digital gold” others are mindful of the turbulent nature of bitcoin and cryptocurrencies and offering reminders that a safe bucket such as high cash value life insurance is still needed.

Some concerns

The central (and oft debated) concern that dominates at the time of this writing is that cryptocurrencies are speculative and risky and if so, how much?

A related concern is the question of how to categorize crypto currencies when investing.  The question is whether cryptos are a “currency” or an “equity”.  In other words, how to we classify cryptos as an asset?

It seems pretty well accepted that bitcoin is for most, an investment in new technology, specifically the blockchain.  And, history appears to support AND many are making the case, that this “investment” is a hugely significant value add which calls to question government control over currencies.

This huge question, and the importance of blockchain technology in general, continues to gain momentum in a time where governments are printing dollars and inflation (the devaluation of fiat currencies) is a looming concern.

Defining Blockchain Technologies as Currency or Assets

blockchain technology as currency or asset

One interesting way that I’ve heard cryptocurrencies defined, is as investments in “little business plans” which are perceived to create future value rather than as currencies or stores of value.

Hedge Against Inflation

Some notables however disagree, such as one billionaire investor, Paul Tudor Jones, who recently told CNBC that he views bitcoin currently as a more favorable hedge against inflation than gold.

Favorable sentiment looking toward bitcoin as a hedge against inflation was also recently echoed by the likes of JP Morgan.

Adding Risk vs Hedging Risk

That said, if you are trying to achieve prudent planning and predictability, which are aspirations to which we strive at I&E, the cautious approach is probably to continue to treat cryptocurrencies as adding risk rather than as a hedge against it, although this line seems to be blurring a bit.

One touted reason to proceed with caution is, despite the decentralization of most crypto AND the limited supply of bitcoins (thus creating demand), the continual introduction of new crypto technologies is not finite but completely open, leading to what could be considered a “scarcity problem” in contrast to other safehaven assets like gold. And, crypto technology is still in its infancy.

With the foregoing in mind, going back to the basics, how do cryptocurrencies and bitcoin in particular square up with Robert Kiyosaki’s advice to “buy assets” AND how does crypto harmonize with high cash value life insurance concepts like Infinite Banking?

A multi-faceted question to be sure; however, an easy take away is, if you’re a crypto enthusiast, a safe bucket is still very much beneficial if not essential.

Much like stock investing and investing in real estate, where market fluctuations bring uncertainty, the same goes for cryptocurrencies .

AND, high cash value life insurance is an asset that remains as a firm foundation for all speculative investing.

As we’ve often written about and discussed in webinars, if you’re using life insurance policy loans as financial leverage toward higher risk opportunities, such as investment in new technologies (i.e. cool crypto), your crypto ROI stands to improve even more dramatically than it may otherwise if trends continue.

The Impact of Cryptocurrencies on Estate Planning

Life Insurance for Estate Planning

On the estate planning side, numerous concerns arise when dealing with crypto assets such as bitcoin, somewhat similar to those related to other digital estate assets like social media accounts or websites, yet with some distinctions.

The foremost estate planning concern with crypo assets is that if no one knows you have it, and you meet your demise, then its gone.

Some institutions are beginning to address concerns, such as Two Ocean Trust, reportedly the first institution to offer a comprehensive digital asset wealth management platform.

Two Ocean Trust’s CEO Joel Revill stated that at first, decentralized digital currency may not be compatible with estate planning due to the reluctance to hand over the keys to your digital wallet.

Cryptocurrency Access Guide

A great suggestion is to create a cryptocurrency access guide.  This may include a number of the suggestions in this article as well as the identification of the wallet as hot or cold and information as to obtaining the private key.

However, sharing your private keys and other information with trusted family members is a good start toward estate planning for cryptocurrencies and any digital asset for that matter.

Some important estate planning steps that can be taken to protect cryptocurrencies include:

  1.  Share your seed phrase and private keys
  2.  Transfer your crypto to a trust and designate successors
  3.  Place digital assets in a custody (such as a hardware wallet) or with a custodian service
  4.  Use a “dead mans switch” to trigger the transfer of digital assets
  5.  Select a cascading multi-signature wallet instead of a self sovereign wallet

Of course, as with any other estate planning, designating beneficiaries for crypto assets is extremely important AND failure to plan for the distribution of cryptocurrencies will put them directly in the discretion of a probate court judge.  So, the same rules for avoiding probate whenever possible applies to crypto.

Also, there are guidelines for referencing your cryptocurrencies in your last will such as identifying the crypto and the number of shares you own AND information on how to access your private key and the location of your digital wallet.

Investment Options for Bitcoin and Cryptocurrencies

At present the investment opportunities in this emerging asset class are evolving.  Options for getting into the space include trading platforms (exchanges) such as Coinbase.com, arguably the most established U.S. based exchange, or Crypto.com which is also well established.  Binance.US is another well established exchange, but not currently available in every U.S. State.

For those with a higher risk tolerance, peer to peer exchange is possible which is an option I’ll let those with an interest figure out.

whole life insurance as an investment

IRA investing in cryptocurrencies is also expanding through several self directed IRA options that are currently occupying the space, which include Alteira, ITrust, and the oldest being BitcoinIRA.com.

For conventional and institutional investors, there are limited options, notwithstanding Mass Mutual and others entering the space.

At present, several ETFs are trading futures such as ProShares BITO (not bitcoin directly) and the recently proposed Bitcoin ETF (direct trading) was denied by the SEC.  Proponents however are optimistic that this denial was a normal first step in ultimately obtaining approval.

Regulatory Outlook for Bitcoin and Cryptocurrencies

Bitcoin and other crypto as been consistently deemed “high risk” and there has been a fair amount of speculation that the government will “ban” or otherwise crack down on cryptos.

As of this writing, the more likely course appears to be increasing regulation and simultaneous adoption of this emerging technology due to its speed, global appeal, better security and cost effectiveness.

Certainly, the crypto space may have a few potential enemies, namely the impact of defi (decentralized finance) on the market share of the major banks.  However, the question remains whether they will simply move toward adoption of the technology.

Political leaders and now certain cities are embracing crypto technology and the major exchanges are gearing up with high powered lobbyists, probably as I write this article.

Governments cannot directly regulate cryptocurrencies so it is likely that too much burdensome regulation will simply push exchange activity offshore.  Recent discussion in the political sphere suggests that government officials do not want to be deemed on the wrong side of innovation.

However, recent legislation has moved to increase regulation on the exchanges, loosely defining “brokerage” services and purporting to require increased documentation for trades.

Arguably, these policy decisions will be subject to the same debates that we see concerning other assets that generate substantial revenue and tax ramifications.

One thing appears certain at this point which is that bitcoin and the blockchain are here to stay.  Assuredly, blockchain technologies represent a very important step toward the decentralization of money power which is problematic, as we’ve often discussed concerning traditional banking and our monetary system. In this respect, bitcoin, the blockchain and the utilization of high cash value life as alternative solutions are following a similar trend.

Steve Gibbs, Esq.

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