Self-Directed IRAs And 401K For Real Estate Investment


Self-directed Individual Retirement Accounts (IRAs) and 401K plans are increasingly becoming popular investment tools for individuals seeking to diversify their portfolios. For many, this means investing in the domestic real estate market, but there is also a growing trend of people who choose to invest internationally – particularly in countries such as Sao Tome and Principe that offer attractive tax benefits. The purpose of this research project is to identify and evaluate suitable self-directed IRA or 401K options for those looking to purchase land in Sao Tome and Principe using funds from an existing retirement account held by Through extensive research into all available legal requirements, regulatory considerations, financial implications, and risks associated with foreign investments as well as evaluation of other factors surrounding self-directed accounts, this paper will provide recommendations on the most viable solutions for investing in real estate abroad through a tax-sheltered account such as an IRA or 401k plan. Investing in the real estate market of Sao Tome and Principe through a self-directed IRA or 401K plan requires considering legal requirements, regulations, financial implications, risks, and other factors.

Research Report

Self-directed retirement accounts such as IRAs and 401K plans enable individuals to direct the investments made in their account, meaning they can invest it into real estate or other non-traditional assets (Garcia & Marques, 2016). Although this is a great way of diversifying one’s investments across different asset classes, all while maintaining tax shelter benefits, there are many considerations that must be taken when investing in foreign real estate with these types of accounts. In particular, before directing funds from an existing IRA or 401K held by towards land purchases in Sao Tome and Principe, it is important to assess all legal requirements, regulatory considerations as well as potential financial implications that come along with engaging in international real estate transactions through self-directed accounts.

Tax implications related to real estate investments made via a self-directed retirement fund must first be considered when making any decision on investing in Sao Tomean real estate. Investment income derived from rentals is subject to taxation under local law at progressive rates calculated on the basis of net rental income within São Tomé e Príncipe’s jurisdiction (WORLD BANK GROUP, 2020). Transfer taxes paid depend largely upon the type of transaction involved (e.g., sale by owner), although transfer taxes associated with sales involving companies generally do not exceed 5%. Stamp duty applies equally regardless of whether parties purchase assets through their own resources: all income derived from asset sales is subject to stamp duty taxation at 10% (IMF, 2022).

The legal requirements of Sao Tome and Principe (STP) must also be taken into account when investing in real estate through self-directed accounts. Foreign ownership restrictions are not in place, and foreigners are allowed to purchase the property. However, any acquisition must first be approved by various government bodies, including the Ministry of Commerce & Trade and Civil Aviation. In addition, mortgages can only include up to 50% capitalization from a financial institution based outside São Tomé e Príncipe (IMF, 2022). Security documents like mortgage deeds are required in order for local banks and institutions to engage in lending transactions associated with real estate acquisitions within their territory.

Finally, investors looking to invest utilizing funds managed under either a self-directed IRA or 401K should ensure that their investment strategy meets certain criteria set out by applicable laws governing these types of investments. Research shows that investor knowledge is key to sustainable and well-performing retirement investments in the long run (Mihaylov et al., 2015). For example, it is important not to enter into any type of transaction which could benefit an insider (such as a family member) who holds interests in the same retirement fund because this may constitute prohibited activity according to such regulations (IMF, 2021). Furthermore, properties purchased via such financial structures cannot effectively become personal assets nor provide significant nonfinancial benefits due to the involvement of retirement savings accounts.

Roll-over Process

The rollover process from to the selected tax-free retirement account requires careful consideration of regulatory requirements and legal considerations in order to ensure a successful transition of funds. Before moving forward, it is important that an investment advisor reviews all documentation related to the transaction, including any notes or reports issued by financial institutions and the government. This is because government policy plays a moderating and critical role in financial transactions (Ghadwan et al., 2023). It is also crucial to consider the timing of such a transfer, as there may be specific deadlines specified by different retirement accounts for contributions and withdrawals. The specified timing must be met in order for an individual not to incur taxes on their assets at both ends of this transaction.

Furthermore, when selecting a self-directed IRA option, investors should pay special attention as some custodians will only permit certain types or classes of investments within their portfolios, while others might have additional restrictions associated with investing in foreign real estate markets like Sao Tome and Principe.

Assessment of Feasibility and Requirements

. Establishing an IRA or 401K-owned business entity in Sao Tome and Principe is a complex undertaking with different legal, regulatory, and financial considerations. It involves an in-depth understanding of the applicable regulations for foreign ownership of real estate assets as well as any restrictions that may be imposed on businesses operating in the country (Ghadwan et al., 2023). Additionally, the investors will need to ensure that their retirement accounts are compliant with US tax laws and establish additional structures such as LLCs or corporations if necessary. They must also create a viable exit strategy, including accounting services and liquidity options, should they decide to liquidate their investments in the future. Finally, it would be beneficial to conduct due diligence by engaging professional advisors familiar with international investment strategies prior to making any commitments.

Financial Analysis and Risk Assessment

Financial analysis and risk assessment of investing in real estate in Sao Tome and Príncipe involves analyzing the state of the economy and its impact on potential investments. The 2016 Human Development Index score for São Tomé and Príncipe is higher than the Sub-Saharan Africa average, indicating a more favorable environment for investment (African Development Bank Group, 2013). In addition, GDP growth has been positive over 2010-2015 at an average rate above 4%, while inflation is under control due to prudent monetary policy, with 2017’s figure being 5% (African Development Bank Group, 2013).

The country also enjoys stable foreign exchange rates as the dobra is pegged to the euro, which helps investors hedge against currency losses when making transactions abroad. Moreover, exports from cocoa have seen modest gains that have helped support economic stability. Although unemployment remains high at 14% (15-24 age group up to 50%), access to credit may be difficult due to risk aversion by lenders (African Development Bank Group, 2013). However, general infrastructure deficits can present challenges even if private sector activity improves significantly going forward, as envisaged in government policies outlined within Vision 2030. These policies include transforming into a maritime hub or financial services center, which enhances opportunities for those willing to take risks where returns are expected to be attractive enough.


After conducting extensive research on self-directed IRAs and 401K plans suitable for foreign real estate investments in Sao Tome and Principe, three viable retirement account options are recommended. First is an IRA LLC setup which allows investors to establish a limited liability company (LLC) owned by one’s tax-free retirement account (Ahmed & Wathik, 2022). The second option is a Solo 401(k) plan that offers participants access to higher contribution limits while also avoiding legal complexities when transferring money across borders. Lastly, the Self-Directed IRA LLC provides additional investment flexibility while allowing tax-free rollovers from traditional or Roth IRAs into a Roth Solo 401K (Ahmed & Wathik,2022). Each of these accounts offers unique benefits as well as disadvantages, making it important for investors to weigh their respective advantages prior to making any final decisions regarding such investments with their funds.


African Development Bank Group. (2013). Annual Report 2013. African Development Bank; Phoenix Design Aid AS/Denmark.

Ahmed, M., & Wathik, I. (2022). Accounting for retirement fund investments in accordance with international accounting standards for the public sector and its impact on financial performance . Accounting for Retirement Fund Investments in Accordance with International Accounting Standards for the Public Sector and Its Impact on Financial Performance Vol. 5, No. 2, 2022(ISSN: 2576-5973), 57–72.

Garcia, M. T. M., & Marques, P. D. C. V. (2016). Ownership of individual retirement accounts – an empirical analysis based on SHARE. International Review of Applied Economics31(1), 69–82.

Ghadwan, A., Marhaini, W., & Mohamed Hisham Hanifa. (2023). Financial Planning for Retirement: The Moderating Role of Government Policy. Financial Planning for Retirement: The Moderating Role of Government Policy13(2).

IMF. (2021). Democratic Republic of São Tomé and Príncipe: Third Review Under the Extended Credit Facility Arrangement and Financing Assurances Review-Press Release; Staff Report; and Statement by the Executive Director. IMF Staff Country Reports2021(202), 1.

IMF. (2022). Democratic Republic of São Tomé and Príncipe and the IMF. IMF.

Mihaylov, G., Yawson, A., & Zurbruegg, R. (2015). The decision to seek advice in the self-directed retirement fund industry. Applied Economics47(32), 3367–3381.

WORLD BANK GROUP. (2020). São Tomé and Príncipe.

Strategic Plan Development

The efficiency of the flow of operations, as well as the institution’s overall success, depends on the adopted strategic plan. Concerning the provision of Enwere et al. (2014), the plan, in this case, forms the basis for every activity undertaken at the institution. The current plan, for example, creates an autonomous model by conceptualizing the principles behind the balanced scorecard approach. According to Enwere et al. (2014), the general essence of adopting this approach is to align the plan’s formulated activities with the organization’s overall objectives. The plan will therefore communicate what our healthcare organization is trying to accomplish and align the day-to-day activities at the institution with these objectives. Overly, the general idea, in this case, is to prioritize the specific projects within the set time limit to give a sense of direction to every operation at the institution, thus saving time and resources. Additionally, the adopted plan will also measure and monitor the progress made on the set organization objective (AlQershi, 2021). As such, the entire system connects the mission, vision, core values, and the organization’s strategic focus with the daily activities performed at that particular institution.

The balanced scorecard has been embraced by health institutions as a robust strategic planning tool. It aims to balance the organization’s financial measures against its strategic goals. A balanced scorecard as diagramed above gives an organization a chance ‘connect the dots between action centers’ (AlQershi, 2021). The framework allows organization planners to communicate what is to be accomplished; align daily tasks; prioritize projects services, and products; and evaluate progress. The balance scorecard framework found its use in the healthcare industry because of its ability to link financial measures and the organization’s strategic goals. The following framework highlights our healthcare organization’s budget and strategic plan to improve the quality care environment.

Organization Mission and Vision

A strategic plan should align with the organization’s mission and values. The organization’s mission defines its direction of purpose, communicates to all stakeholders where it is headed, and highlights the key issues it is solving in society. A strategic plan should be developed with a concise understanding of the organization’s mission, to ensure the unidirectional movement of resources (AlQershi, 2021). An organization’s vision and values define the inherent values that allow it to coexist in the community and foster positive cooperation among its members. Both mission and vision should be well communicated to the members and supporting culture enhanced.

Meres Healthcare Facility’s goal is to promote an accessible quality healthcare environment to everyone. To achieve this, the organization relies on evidence-based practices and constant research and innovation. It has, therefore, developed a strategic plan with the mission of improving quality care through value-based care, a patient-health-centered approach. The goal not only fits with its mission but also its quality value proposition. A balanced scorecard is effective to evaluate the effectiveness of the strategic plan against the company’s financial health. It helps identify the most appropriate financial input areas with greater care quality outcomes. For example, the company aims to invest in technology as part of its value proposition. The balanced scorecard allows the investors to conceptualize technological tools that will promote quality care guided by evidence-based practice. The framework below summarizes the value position of the strategic plan.

Balanced Scorecard

Balanced Scorecard

Each of the Value-Position is aligned with the organization’s mission and vision of accessible quality healthcare in an evidence-based environment. The value positions are highlighted in four critical areas:

Financial Budget Perspective

With the growing emphasis on quality maintenance, it is becoming much more difficult to guarantee the development and growth of this healthcare institution. Every activity at the institution seems to be costly. The overall patient management process presents great financial pressure, especially with the increasing patient population. Concerning the analysis by Schalm (2008), just like most institutions, this is forcing our institution to increase the overall cost of medical care, which has affected the facility and the patient population. In this regard, the proposed plan is the adoption of a value-based reward system. The general structure of this system is to reward the care providers based on the value of the services they deliver. This will enhance the level of proficiency of these care providers, thus improving the overall quality of care while also solving the cost factor.

Customer Perspective

The priority concerning the view of the customer is the adoption of a patient-centered approach to care. According to the provision of Teichgräber et al. (2021), this model will help shift the focus of the operations at the institution to the specific healthcare needs presented by each patient. As such, the approach will help reduce the time and resources spent attending to each patient. Moreover, concerning the analysis of Nippak et al. (2014), this will also improve the overall outcomes of the care process, thus guaranteeing the safety of these patients. Generally, the implementation of this strategic change will improve the performance of the facility in promoting public health safety.

Internal Process.

The key factor in this strategic priority is to enhance the flow of operations at the institution by improving the overall level of proficiency. Based on the recommendation by Meena and Thakkar (2014), this starts with technological advancement in the organization. The key factor, in this case, is to embrace the diversifications in technology and apply these tools to improve the nature and outcomes of service delivery. Moreover, the institution also intends to maintain quality service delivery by applying competency-based practice. Overly, this approach is directed toward ensuring the utmost proficiency of every care provider. Therefore, these nurses are expected to possess all the required nursing competencies as provided by the National Organization of Nurse Practitioner Faculties (NONPF).

Learning and Growth

The priority of learning and growth is stretched to include both the care providers as well as the patients. For instance, for the care providers, the general emphasis, in this case, is the adoption of evidence-based practice. As highlighted by Amer et al. (2022), this includes the promotion of continued research among these care providers to enhance the validity and credibility of every activity at the institution. However, from the patient’s perspective, this strategic priority advocates for continued disease management and prevention awareness to help the patient stay safe.

The Strategic Planning Process

After establishing the appropriate framework. A strategic plan was developed by examining three main phases: Highlighting the objectives, formulating the strategy, undertaking a SWOT analysis, examining the legal and ethical environment, and strategy evaluation.

Strategy Mission, Vision, and Objectives

The mission of the organization is to enhance quality accessible care to all patients through a patient-centered intervention approach. The key objectives include advancing evidenced-based care, improving EHR in the facility, and creating an ethically sound treatment environment. The organization’s objective, mission, and vision advocate for a quality patient-centered care environment. The healthcare facility’s core values include leadership, accountability, integrity, professionalism, teamwork, commitment, creativity, and innovation.

Strategic Plan SWOT Analysis

Strengths Weaknesses

  • Experienced medical staff
  • Clear communication channels
  • Existing EHR infrastructure
  • Supported national health goals
  • Autonomy
  • Good leadership
  • Clear health mission, vision, objectives

v Scarce financial resources

v Inadequate training for the new roles

v Excessive dependence on outside funding

v Not fully automated systems

v Lack of specialized software to analyze cases

v Challenges with implementing EHR and evidenced based-care

Opportunities Threats
ü Improving relationships with financial bodies

ü Playing a central role in community care

ü Enhancing evidence-based care to promote an organization’s image

ü Opening up funding channels

ü Creating MOUs with local and international health organizations

ü Boosting stakeholder trust

ü Integrating an automated case management system

Ø National governance interferences

Ø Inadequate adherence to ethical and legal obligations by reporting bodies

Ø Overreliance on funding from outside

Ø Weak transaction monitoring systems

Ø Most institutions do not have data management systems

Ø EHR general weakness

Ø Change management challenges

Ø Emerging health system demands

Strategic Formulation

Based on the SWOT analysis, the healthcare strategic plan is formulated from the defined strengths and weaknesses. Financial resource issues are highly evident in the case; therefore, it highly influences the strategic decision made. The staffing issue is also evident and the new technology plan should be evaluated to establish how it would fit the existing human resource needs or the possible training demands (Harrison, 2016). The future of healthcare has been highlighted both under threat and in opportunities, it is vital in making a strategic decision about evidenced-based care and automation in the facility. Finally, the strategic plan is expected to perform effectively within the organization and at the same time outside forces, such as government demands for information management (Harrison, 2016). Hence, the strategy is based on the desired outcomes after strategic evaluation of both the internal and external forces affecting the healthcare organization.

Strategic Policy Implementation

The implementation stage includes communicating the change to all the stakeholders, change management, and steering the new change to the desired goals. In this case, it is designed to help smoothly facilitate the strategic plan’s objectives. Policy implementation should involve all the stakeholders and an effective change model to minimize undesired consequences. Kurt Lewin’s change mode of unfreeze, change, and refreeze is effective during this implementation (Harrison, 2016).

Monitoring and Evaluation

Based on the presented information, it is evident that each of the highlighted priorities is in response to the set organizational objective of continued quality maintenance at the lowest costs possible. Moreover, these goals are also very attainable with the available organizational resources and do not require a lot of time to implement. In addition, the institution’s policy on value creation also favors these organizational strategic priorities. For instance, these policies fight for the protection of the patient’s interests at all times (Harrison, 2016). This includes the delivery of quality services as well as eliminating the cost factor that may prevent these patients from accessing the services of the institution. Monitoring and evaluation will be rolled out to establish how the planned change is taking shape. The SMART objectives will be used as indicators during plan implementation.

Legal and Ethical Considerations

The legal environment affecting care provision is critical in this strategic plan. Among the laws that should be given consideration include information management laws, privacy laws, financial management laws, patient protection laws, human resource management and labor laws, and sustainable management laws (Harrison, 2016). These laws directly affect the organization and should be given priority before developing a new strategic plan. Most healthcare institutions are struggling with HIS laws, because of porous healthcare information systems. Cybersecurity laws are also becoming important among users of technology (Harrison, 2016). The legal concerns should be fully addressed before the implementation of the plan.

Ethical concerns are critical in a healthcare setting. The ethical concerns that should be addressed include staff autonomy during the change process, non-discriminatory practices that can result from implementing the technology, patient management ethics, evidenced-based data management ethics, financial reporting ethics, and work environment ethics (Horn et al., 2021). The entire ethical environment forms part of the organization’s vision and values. When effectively managed, the change process will be smooth and productive. Other ethics that should be observed in this strategic plan are those involving transparency, accountability, and integrity at every stage of implementation (Harrison, 2016).

In conclusion, the strategic plan for Meres Healthcare Facility is guided by the balanced scorecard framework. The scorecard allows the strategic committees to conceptualize both the financial and strategic goals of the plan. The strategic plan is further guided by the organization’s Mission and vision, and SWOT result. Based on the analysis the plan has been formulated to address staff, financial, and industrial demands for the new strategy. Finally, the organization’s legal and ethical environment has been established as critical in the strategic plan. Several legal and ethical concerns have been highlighted as critical in the strategy implementation.


AlQershi, N. (2021). Strategic thinking, strategic planning, strategic innovation and the performance of SMEs: The mediating role of human capital. Management Science Letters11(3), 1003-1012.

Amer, F., Hammoud, S., Khatatbeh, H., Lohner, S., Boncz, I., & Endrei, D. (2022). The deployment of a balanced scorecard in health care organizations: Is it beneficial? A systematic review. BMC Health Services Research22(1).

Enwere, E. N., Keating, E. A., & Weber, R. J. (2014). Balanced scorecards as a tool for developing patient-centered pharmacy services. Hospital Pharmacy49(6), 579-584.

Harrison, J. P., & Association of University Programs in Health Administration. (2016). Essentials of strategic planning in healthcare (Vol. 1). Chicago: Health Administration Press.

Meena, K., & Thakkar, J. (2014). Development of a balanced scorecard for healthcare using interpretive structural modeling and analytic network process. Journal of Advances in Management Research11(3), 232-256.

Nippak, P., Veracion, J. I., Muia, M., Ikeda-Douglas, C. J., & Isaac, W. W. (2014). Designing and evaluating a balanced scorecard for a health information management department in a Canadian urban non-teaching hospital. Health Informatics Journal22(2), 120-139.

Schalm, C. (2008). Implementing a balanced scorecard as a strategic management tool in a long-term care organization. Journal of Health Services Research & Policy13(1_suppl), 8-14.

Teichgräber, U., Sibbel, R., Heinrich, A., & Güttler, F. (2021). Development of a balanced scorecard as a strategic performance measurement system for clinical radiology as a cost center. Insights into Imaging12(1).

An Examination Of Cryptocurrency As An Emerging Asset Class


Cryptocurrency is a growing conventional financial system that has massively impacted modern financial practices and theories. The public lost trust in the conventional banking system after the 2007-2008 global financial crisis. The 2007-2008 global financial crisis occurred due to the lowered housing prices and the increased number of those who took loans but could not pay (Aslan & Sensoy, 2020). This happened because the banks provided cheap credit with loose borrowing restrictions. Attempts to recoup the money borrowed resulted in people losing their homes, possessions, and employment. The banks were left with trillions of dollars in unprofitable investments. Beyond the financial institutions, the crisis has affected international central banks, including Goldman Sachs, JP Morgan, and Morgan Stanley. The crisis was solely attributed to the financial institution giving unrestricted and uncollateralized lending, leading to a liquidity shortage (Houben & Snyers, 2020). As a result, financial institutions dented their reputation at an international level. A digital currency was birthed from this distrust of banks. Cryptocurrency was introduced to respond to some of the inequities by financial institutions. For instance, the need for a system that would allow people to transact with many efficiencies, such as the cost of transactions and urgency, and without the banks as intermediaries for every transaction.

Theoretical framework

Cryptocurrency is a digital currency that provides transactional security using cryptography. Unlike banks which issue regulatory authority at a central position to record and keep a tab on transactions, transactions in crypto are described digitally and do not require verification (Houben & Snyers, 2020). Cryptocurrency is a peer-to-peer system that allows users to transact anywhere, anytime. The system first replaces traditional financial theories by replacing physical money with digital money. Transactions carried out in Cryptocurrency are recorded in a public ledger, and the currencies store in private wallets. Transactions are also secured since they are sent under encryption which needs verification to complete. This means storing currency in wallets, transfers, and exchange involves advanced coding as security measures.

Bitcoin is still the most popular Cryptocurrency since it was founded in 2009 (Afzal & Asif, 2019). The currency units are created by mining which involves arithmetical solutions done using a computer and requires much energy to run a computer system. The coins from mining are created and end up with users through brokers and are stored in crypto wallets. The digital currencies are distributed through blockchain, and the holders hold and update the transactions. Holders of the currencies own an encrypted key that allows them to transfer the units freely to other people without a third party. Cryptocurrency is gaining significance in conventional financial systems and is massively impacting modern financial practices and theories. The use is getting more popular since digital currency works as an independent variable, beating the modern financial theories dictated by financial institutions (Charfeddine et al., 2020). For instance, transferring digital coins only requires the holder to have the key, while bank transactions require banks or other financial institutions to be the third party. As an independent variable, digital currency also does not have a central place where the transactions are generated since every holder can generate a transaction. These traditional theories and practices by the financial institutions informed the invention and need for digital currency to allow users to conduct transactions efficiently, seed, and without a third-party player. Even though Bitcoin has been used since its invention in 2009, digital currency and blockchain technology have increased.

Literature review

Currently, multiple businesses and startups are trading Cryptocurrency. Cryptocurrencies have considerably helped in the exponential global expansion of online trading. The growth of the digital currency market enables efficient and discreet international trade while increasing financial liquidity. Cryptocurrency was initially explored in 1989, and a year later, David Chaum developed digital cash, which cleared the way for the development of pure independent digital money(Jebran, 2020). Bitcoin was the first digital currency founded in 2008 by Satoshi Nakamoto. Without an institutional broker, Bitcoin allows direct transfers between two parties. Nakamoto explains that transactions without financial institutions playing intermediaries are more secure. After the creation of Bitcoin, the digital currency proliferated between 2010-2014 after the foundation. As the price of Bitcoin began to rise dramatically, other digital currencies like Litecoin and Ripple entered the market (Alam & Zameni, 2019). According to (Rejeb et al., 2021), online trading peaked in 2012 at more than USD 1 trillion and has grown by about 15% annually. Similarly, estimates of Bitcoin usage indicated 60,000–70,000 transactions daily, totaling between € 15 and € 30 million. Because of digital currency’s quick, inexpensive, and effective nature, many significant transactions are possible. Sceptics received the adoption of the new digital currency as people gradually accepted it. Due to a lack of regulation, from 2014 to 2017, bitcoin saw an age of fraud, during which new crypto was created quickly, and with the aid of ICOs (initial coin offerings), numerous crooks stole millions from consumers. Cryptocurrencies have been controversial and debated due to scams and curiosity. However, there has been an increase in market interest since 2010, which has resulted in increased investment and acceptance (Alam & Zameni, 2019). Additionally, the cryptocurrency market is experiencing tremendous growth because of the attraction of transparency and confidentiality. Ide (2023) states that the adoption of cryptocurrencies from 2019 to 2021 has been immense, and there has been a massive rise in interest from regulatory organizations in more regulation due to customer concerns. The significance of Cryptocurrency is pegged on its pricing, which is a dependent variable. Bitcoin market price in USD is used as a dependent variable. Kozachenko et al. (2022) explain that as a new asset, the digital currency has emerged in new studies of its economic behavior in a global financial market. The interest in this new asset is mainly on its rapid rise and its interest in the financial market. The lack of a central authority that oversees and maintains the monetary worth of Bitcoin and the knowledge that its value is predicated on the expectation that the digital currency will maintain its growth makes it highly susceptible to facts and market fluctuations. There are still chances to profit from Bitcoin’s liquidity and volatility (Calcaterra et al., 2020). Three factors influence the dependence on Cryptocurrency; microeconomic factors such as the stock exchange index and dollar quotation (Civelli & Jackson, 2023). Secondly, it is affected by value attractiveness, such as the rate of increased interest in the currency, as indicated by its gradual appreciation. Lastly, it is also affected by the dynamics that exist between supply and demand. Modern portfolio theory is one of the modern financial theories that resonates with Cryptocurrency as an independent variable. The theory states that risk elimination can be conducted by creating a diversified portfolio. This has been an issue with financial institutions since they operate in a traditional system that has centralized risk by having a concentrated risk in a centralized system. For instance, the global financial crisis was due to the dependent centralized system in the global banking system. The liquidity crisis affected different parts of the world due to a lack of risk distribution.


By examining Cryptocurrency as an emerging asset class, it is crucial to explore the implication of digital currency in the financial sector, dissecting traditional practices and theories by the bank that will be more effective using crypto. Cryptocurrency payments may be made between wallets or accounts without the involvement of a third party, which lowers transaction costs and improves security and anonymity. The cheap transaction costs that the Bitcoin system provides consumers give it the edge over other payment methods in popularity. Berg et al. (2019) claim that combining cryptocurrencies with blockchain technology can reduce the cost of reliability, a crucial component in the financial system, in various ways. These expenses include commissions paid to the third-party financial institution, contract entry and maintenance fees, negotiation costs, cybersecurity costs, and authorization charges. Customers must trust banks to protect their funds and act on their interests. Due to its conventional practices and theories, the financial industry faces several difficulties and has recently gone through crises. For instance, the global financial crisis of 2008 caused millions of individuals to lose their livelihoods and properties. Financial institutions with centralized systems are more likely to experience societal losses and dangers due to concentrated risks, assert Calcaterra, Kaal, and Rao (2020). Cryptocurrencies have the potential to solve a number of issues inherited from the current financial institutions, such as disintegration risk and other issues, including a lack of confidence, ineffective transactional methods, and volatility.

Secondly, Cryptocurrency enhances efficiency due to its shorter settlement time in its transactional process than conventional payment methods. The short settlement period could also solve settlement disruptions during the settlement process. Transactions in conventional banking systems might take longer, unlike in digital currency, which takes an incredibly shorter time despite the complexity of the transaction. Money transfers could be dangerous in the real world, but users of Cryptocurrency can do them fast and covertly. Due to their efficacy, the Bank of England has raised awareness about the potential use of cryptocurrencies to speed up settlements between banks. Calcaterra & Kaal (2021) states that several players in the financial services sector assert that the availability of cryptocurrencies might be a workable replacement for financial institution settlement instruments that lower risk and boost the effectiveness of commercial financial transactions. Additionally, using cryptocurrencies may eliminate the need for banks to maintain transaction accounts on their financial statements. A single shared ledger, such as a blockchain, may instead store all cryptocurrency transactions to simplify banking arrangements. Auer (2019) explains that the proof-of-work approach is often employed in cryptocurrency settlements; all transactions are recorded on a blockchain, protecting users from fraud and enhancing effectiveness by making transactions tractable.


The rapid growth of Cryptocurrency has also been met with criticism, typical of new developments in every sector. Despite the numerous advantages of traditional financial institutions, the digital payment system has risks. The concerns, especially in integrating digital currency in a widescale or global financial system, emerge from a point of concern about the absence of legislation control or a centralized control standard. Due to their capacity to subvert established regulatory frameworks and circumvent governmental control over fiscal policy, cryptocurrencies are often linked to illicit activity. Similarly, cryptocurrencies are considered one of the world’s biggest uncontrolled marketplaces. Most European nations lack Cryptocurrency use rules or regulations (Alonso & Luis, 2019). Transactions based on cryptocurrencies are decentralized, making them more challenging to track and potentially assisting in the concealment of illegal activity. Since the advent of digital currency, black markets have been revived to the advantage of their anonymity. The expansion of illegal online marketplaces is accelerating due to digital money. Due to the anonymity in its transactional system, it is challenging to pin down the identities of the users; thus, bitcoin is actively resurrected illicit marketplaces and offers a variety of options for safe means of payment for such activities. Due to its ability to circumvent government enforcement, Bitcoin is the ideal instrument for conducting transactions and other financial interactions in the black market (Nani, 2022). The structure of the illicit markets could shift due to digital currencies. According to Senjyu et al. (2021), cryptocurrencies are frequently employed in criminal dark web platforms to facilitate selling of illicit drugs, firearms, and other illegal commodities. Using bitcoins similarly promotes criminal activities such as money laundering, and the drug trade is encouraged. Due to this, the security of people’s livelihood, activities, and earnings is threatened by the widespread existence of illicit markets in regulated economies.

Lastly, Environmental sustainability concerns are linked to mining cryptocurrency coins. Cryptocurrencies have garnered negative press by allegations that cryptocurrencies use a significant amount of energy and harm the environment. Bitcoin is expected to spread into other fields and impact other businesses as they become more well-known and popular. Blockchain, the underlying technology of cryptocurrencies, significantly relies on using power-hungry computation, graphics processing units, and energy usage to mine coins. According to Vaz and Brown (2020), transactions made by Bitcoin require about fifty-eight times as much energy as payments made using visa transactions. The authors contend that even though Visa depends on several financial and institutional systems that require vast amounts of energy to operate is nowhere near compared to the transaction by Bitcoin transaction.


In conclusion, the flaw in the conventional banking system contributed to the emergence of digital currency. Cryptocurrency was invented in 2008 during the global financial crisis that impacted the liquidity of currency negatively, causing loss of livelihood and properties. The public lost trust in the traditional banking system, practices, and theories. Cryptocurrency has been used to fill in some ineffectiveness by traditional banks. For instance, it breaks the barrier intermediaries, which contributes to inconveniences. For instance, the need for a system that would allow individuals to transact efficiently, such as the cost of transactions and urgency, and without the banks as intermediaries for every transaction. However, Cryptocurrency has been criticized for inefficiency. The digital currency has facilitated the black market, which has promoted illegal trade such as money laundering, drug trafficking, and the sale of firearms. It has also been associated with environmental pollution since the mining of coins requires the use of massive powered computers.


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Alonso, S. L. N. (2019). Activities and operations with cryptocurrencies and their taxation implications: The Spanish case. Laws8, 1.

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