The Counterparty Ladder - How the Bitcoin IRA by Bitcoin Well helps your bitcoin journey

TLDR;

• Bitcoin Well has launched both a Traditional and Roth IRA
• You are now able to hold tax-advantaged bitcoin on the blockchain directly from your Bitcoin Well account
• We opted to launch the first version with coins held at Bitgo
• We are planning to launch a self-custody IRA later this year
• This article explains why

Prelude

This article is an outline of the thought process that went into Bitcoin Well, a non-custodial bitcoin company, offering a third-party custody retirement account; the Bitcoin IRA by Bitcoin Well. Before we start, we need to agree on two terms I will use throughout this article.

Counterparty:

A “counterparty” is anyone with authority between you and your bitcoin. A custodian is one kind, and as we saw, so is a firmware author or an assembly line. We can also look at chip suppliers, jurisdictions, or a co-signer. Even the version of you that wrote down your seed phrase can qualify as a counterparty.

When you see the word counterparty, you just need to think “something which could impact my money at some point in the future”.

Captured funds:

For the purposes of this article, you will also read the term “Captured funds”. This term refers to any asset in a structure that the government (past, present or future) has jurisdiction over.

I have come to the conclusion that a retirement account is always holding captured funds; regardless of the asset inside (yes, even if that asset is bitcoin). This doesn’t mean you shouldn’t have a retirement account, it also doesn’t mean you shouldn’t hold bitcoin in your retirement account, but I want to make sure we are all aligned with the structure and the consequences of that structure.

The consequences come from the tax code. Contribution limits, withdrawal ages, penalty schedules, distribution rules, and the standing authority to change any of them whenever it suits the overlords in charge are what make these “captured”.

The counterparty ladder

Over the last few months I have been theorizing of what I’m calling “the counterparty ladder”. I am also coming to terms with the fact that we are forced to live with counterparties, and it is our duty as bitcoiners to identify who the counterparties are, and what we are willing to tolerate, for what benefits.

Here are a few of the most obvious “rungs” on the counterparty ladder:

Rung 1 - Legacy assets in a custodial retirement account.

Captured, and counterparty dense. A custodian, a fund manager, an issuer, a clearing house, a transfer agent, and an asset that is itself a promise form a board of directors You do not “own” anything in this structure. You own a claim, administered by people you will never meet.

This is an unavoidable rung if you want to invest your retirement account into assets that are not bitcoin. It is also where I believe the majority of our Bitcoin IRA inflows will be coming from.

Rung 2 - Bitcoin in a custodial exchange account.

Most of the custodians from rung 1 disappear, but you introduce the unnecessary risk of “the honeypot” at the custodian, as well as the custodian’s ability to secure your bitcoin. Lastly, you could be exposed to the custodian’s terms and conditions in the event of their bankruptcy.

You take on a pile of extra risk, and you have no extra benefits other than outsourcing your personal agency.

Rung 3 - Bitcoin in retirement accounts

The best asset in the world, sheltered from taxes.

Rung 3a - Bitcoin in a custodial retirement account.

Reduced counterparties to rung 2, and the added benefit of tax sheltering.

I believe this to be a massive leap in the right direction from both rung 1 and rung 2, and likely appropriate if you already have captured assets in the retirement system, or are looking to place assets into the retirement system.

Rung 3b - Bitcoin in a self custody retirement account.

Coming soon to the Bitcoin IRA by Bitcoin Well. The custodian counterparty disappears, the captured asset structure does not. What remains is the risk every self-custodian carries, key loss or theft, but inside an IRA it is extra punitive: not only have you lost your bitcoin, you may also owe taxes and penalties because of the IRA structure. More on that in a future article.

Rung 4 - Bitcoin in collaborative custody.

Typically facilitated by multiple institutions, with no single party taking full control of the bitcoin. These institutions are disincentivized from colluding and stealing your funds while the honeypot risk is eliminated.

This is a great option for people who are protecting large amounts of bitcoin for a company, or are inheritance planning. This rung is also where direct insurance opens up. You continue to be reliant on others to access your funds, but your risk of loss decreases.

Rung 5 - Bitcoin in self custody.

I believe this rung is the longest step on the counterparty ladder, and if you are here you should feel proud.

This rung champions the freedom maxi’s ethos of being “ungovernable” and ensures your optionality of what to do with the bitcoin you own if (when?) the government starts to confiscate them.

However, we have seen that hardware wallet firmware and assembly lines are counterparties in this equation and need to be taken into account.

Rung 6 - Bitcoin purchased privately in self custody.

Pure bitcoin ownership without your full identity tied to the purchase, likely purchased P2P or through a company that allows this type of transaction like the Bitcoin Well Cash Vouchers.

The path to zero counterparties is a direction which appears to be evolving, not a destination we can nail down and achieve; as I once thought.

As outlined, there are reasonable trade offs in each rung, and different people will land on different rungs at different times, for different reasons. Our job at Bitcoin Well is to build the bitcoin services that fit each rung in order to help people as they progress on their Bitcoin Journey.

Enter the Bitcoin IRA by Bitcoin Well

Nestled firmly in the middle of the counterparty ladder at rung 3a, you can now unlock your captured assets and expose yourself to fewer counterparties while you benefit from tax-advantaged bitcoin ownership!

Bitcoin Well has partnered with Heritage IRA to offer you the ability to buy real bitcoin, verifiably on the blockchain, with tax advantages. We are starting with both a traditional IRA for tax-deferred bitcoin ownership, and a Roth IRA for tax-free bitcoin ownership.

The Bitcoin IRA by Bitcoin Well is for the person with a retirement account that they cannot touch for many years without a penalty. That money is captured regardless of the asset sitting inside, it is my hypothesis that owning bitcoin inside your retirement account is the best way to grow generational wealth with your retirement accounts.

Why would I want bitcoin in my IRA?

The point of holding bitcoin in your IRA is not to replace your existing stack in self-custody (rung 5), it’s to replace your existing captured assets (rung 1) with bitcoin. Traditional retirement accounts are inherently captured by government tax codes and locked into legacy financial instruments like stocks, bonds, and mutual funds. These assets carry heavy counterparty risk and typically dilute over time.

With traditional assets locked in your IRA until you are 59 years old, you are forced to expose yourself to these counterparties for many years, or potentially decades.

By shifting those captured assets into bitcoin, you transition from board-of-directors promises and fund-manager overhead to the hardest asset in human history, allowing your retirement capital to compound tax-advantaged alongside your sovereign, self-custodied stack.

Can I take self-custody of my Bitcoin IRA by Bitcoin Well?

The first version will be a custodial Bitcoin IRA, secured and insured by Bitgo. Why Bitgo? We’ve stored millions of dollars worth of bitcoin with them over the last decade, we appreciate the insurance they have and we want to make owning bitcoin at rung 3 very simple.

However, we are also building a self-custody Bitcoin IRA! I personally believe bitcoin is a tool that gives us options, and we want to provide as many options as possible to our customers.

The Counterparty Ladder and Your Financial Freedom

Whether we like it or not, our lives are shaped by counterparties, with our traditional asset and bitcoin holdings being no exception. As you navigate your personal bitcoin journey, you may deliberately choose to keep a portion of your wealth on a lower rung to leverage specific tax or operational advantages.

The greatest risk isn’t holding bitcoin on a lower rung; it’s leaving your assets exposed to counterparties unknowingly and without purpose. Take control of your exposure today. Use our interactive counterparty tool to map your holdings, audit your risks, and build a clearer path toward true financial sovereignty.