Military Members: Cryptocurrency Investment Opportunities And Challenges

Cryptocurrency is a hot topic for investors, and those in the military are no exception. However, there are some unique considerations for military personnel when it comes to investing in this relatively new asset class. The volatile nature of cryptocurrencies makes it a high-risk investment, and this is further compounded by the lack of central regulation and the potential impact on security clearances. While the Department of Defense (DoD) and the Director of National Intelligence (DNI) have not provided clear guidance, military members must navigate the grey areas of reporting requirements and the potential for foreign influence, which could impact their clearance status.

Military members do not need to report cryptocurrency holdings when applying for security clearance

Military Members and Cryptocurrency Investments

Military members are allowed to invest in cryptocurrency, but they should proceed with caution. Cryptocurrency is a high-risk investment, and it can have implications for security clearances.

Security Clearance and Cryptocurrency

As of late 2022, military members did not need to report their cryptocurrency holdings when applying for security clearance. However, this is likely to change as the Department of Defense (DoD) and the Director of National Intelligence (DNI) are working on guidance for cryptocurrency reporting. It is important to note that while not directly related to security clearances, federal employees and contractors must disclose their cryptocurrency holdings. This suggests that military members will also need to make similar disclosures in the future.

Factors Affecting Security Clearance

When considering security clearance, background investigators look at several factors related to cryptocurrency holdings:

• Financial issues: Financial problems, including risky investments, can call into question an individual's reliability and judgment. If cryptocurrency investments cause financial difficulties, it may impact the individual's security clearance.
• Criminal behavior: Cryptocurrency has been associated with criminal activity, particularly on the dark web. Background investigators may view large cryptocurrency holdings as a potential indicator of involvement in illegal activities.
• Foreign influence: Cryptocurrency transactions are largely untraceable, making them a concern for national security. Investigators will want to ensure that cryptocurrency holdings are not being used to facilitate foreign influence or the exchange of classified information.

Recommendations for Military Members

Military members considering investing in cryptocurrency should keep the following in mind:

• Practice caution and diversify their investments to minimize risk.
• Be honest during the security clearance process and disclose any cryptocurrency holdings.
• Ensure they have a legitimate explanation for their crypto holdings and are not involved in financial issues, criminal activity, or foreign influence.
• Stay informed about the latest policies and guidelines regarding cryptocurrency and security clearances.

Cryptocurrency holdings may not affect security clearance

As of 2023, there are no reporting requirements for those seeking a security clearance concerning cryptocurrency ownership. However, individuals must adhere to financial reporting thresholds for investments. This means that, while there is nothing inherently illegal about owning cryptocurrency, it is important to follow the law. For example, if you are mining crypto, you must pay self-employment income tax.

The Department of Defense (DoD) may deny or revoke security clearances for many reasons, including heedless investing and other financial missteps. Therefore, it is important to exercise caution when investing in cryptocurrency. Many financial advisors suggest investing no more than 5% of your portfolio in cryptocurrency. If you hold a security clearance, you should be even more cautious, as significant losses can create additional problems that jeopardize your security clearance.

It is important to note that the IRS treats cryptocurrency like traditional investments: it is property, not currency. As such, security clearance holders must declare investments and capital gains on their tax returns to avoid tax problems that could jeopardize their clearances.

In terms of security clearance, one concern with cryptocurrency is that it has been a currency of choice for use on the "dark web". It has also been used by terrorists, drug dealers, and other illicit agents who want to keep their financial dealings hidden from authorities. Therefore, investing in cryptocurrency could inadvertently contribute to criminal activity, risking violation of the "Criminal Conduct" guideline.

Additionally, the decentralized nature of cryptocurrency means that it is not affected by the whims of any government or central authority. This makes it suspect in the clearance process, as possessing a large amount of foreign currency might raise red flags.

However, as long as normal rules are followed and appropriate disclosures are made, there are minimal security clearance concerns when it comes to investing in cryptocurrency.

Military members should disclose cryptocurrency holdings to avoid issues during security clearance

Military members should disclose their cryptocurrency holdings to avoid issues during security clearance. While the Department of Defense (DoD) and the Director of National Intelligence (DNI) have not offered clear guidance on cryptocurrency reporting requirements, military members must periodically renew their security clearances, and it is better to disclose cryptocurrency holdings than to appear to hide something from an investigator.

The purpose of a security clearance is to determine whether an individual can be trusted with sensitive information related to national security. Background investigators consider financial issues, criminal behaviour, and foreign influence when evaluating trustworthiness. Holding large amounts of cryptocurrency could indicate potential issues in these areas, as cryptocurrency is often associated with criminal activity, money laundering, and foreign influence.

While it is not currently required to report cryptocurrency holdings, military members should be aware that the DoD and DNI are working on guidance, and policies may change. Additionally, certain federal employees and contractors are required to file cryptocurrency disclosures, suggesting that service members will also need to in the future. Therefore, it is advisable for military members to disclose their cryptocurrency holdings during security clearance applications to avoid any potential issues.

It is important to note that financial problems are the leading cause of security clearance issues. Cryptocurrency is a highly volatile and speculative investment, and significant losses can create additional problems that jeopardize security clearance. Thus, military members should exercise caution and consider diversifying their investments to minimize the impact of potential financial losses.

Military members can invest in cryptocurrency through crypto exchanges

While crypto exchanges offer a convenient way to invest in cryptocurrency, it's worth considering the risks associated with this type of investment. Cryptocurrency is a highly volatile asset class, and its value can fluctuate drastically in a short period. Additionally, it is not regulated by central authorities, which means investors have less legal protection. The lack of regulation also makes cryptocurrency a preferred method of payment for scammers, as victims have no recourse if they send crypto to the wrong person.

Another option for military members interested in cryptocurrency is to invest indirectly through cryptocurrency stocks or mutual funds. These function like normal securities and allow investors to buy and sell on a public market without directly purchasing the underlying cryptocurrency. Some examples include Riot Blockchain (RIOT), Marathon Digital Holdings (MARA), and Hive Blockchain (HIVE).

It's important to note that the information provided here is not financial advice, and individuals should carefully consider their own financial situation and risk tolerance before investing in cryptocurrencies.

Military members can indirectly invest in cryptocurrency through stocks and funds

Some examples of cryptocurrency stocks include:

• Riot Blockchain (RIOT): A Bitcoin mining company focused on expanding large-scale mining operations in the United States.
• Marathon Digital Holdings (MARA): A patent-holding company that purchased Bitcoin and Bitcoin mining equipment to expand into cryptocurrency investments.
• Hive Blockchain (HIVE): The first publicly-traded cryptocurrency miner.
• Voyager Digital (VYGVF): A cryptocurrency trading app that also allows users to buy shares in the company.

In addition to stocks, military members can also invest in cryptocurrency exchange-traded funds (ETFs) and mutual funds, such as those offered by Charles Schwab. These funds hold crypto and provide a way to invest in a more diversified portfolio of cryptocurrencies, potentially reducing the risk associated with investing in a single cryptocurrency.

It is important to note that investing in cryptocurrency, whether directly or indirectly, carries significant risks. Cryptocurrency is a highly volatile asset class, and its value can fluctuate drastically in a short period. There is also a lack of regulation and legal protection in this space, as it is not insured or regulated by a central authority. Therefore, military members considering investing in cryptocurrency should carefully weigh the risks and conduct thorough research before making any investment decisions.

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