Over the past year, several professional athletes and two major city mayors have announced that they will be taking part of their salaries in bitcoin. If you get paid by direct deposit and are bullish on bitcoin, you can also turn your salary into satoshis. (There are 100 million satoshis in a single bitcoin.)
For most of us, getting paid in bitcoin does not mean that our salary is denominated in bitcoin. Rather, it means that your employer directly deposits a portion of your fiat-denominated paycheck into a bank account connected to a crypto exchange, which then uses the money to buy bitcoins and deposits that amount into your crypto wallet.
Coinbase, the most widely used cryptocurrency exchange, rolled out this direct deposit feature in late September. Users can print direct deposit documents from the Coinbase website and send them to their employers or, if the employer contracts with one of the many large payroll processing companies, set up direct deposit entirely in line. They can then choose to have a specific dollar amount of each paycheck, or a percentage, converted into bitcoin or one of several other cryptocurrencies.
The basic process is not new. Investment companies such as Vanguard and Fidelity allow customers to directly deposit their paychecks into brokerage accounts. Some people have their paychecks split up and deposited directly into traditional checking and savings accounts, or even into accounts at different banks.
The new option may look like buying crypto yourself, but with additional steps. “In my opinion, this is probably just marketing,” wrote a member of the r/Bitcoin subreddit in November. “Oh, this famous athlete gets paid in bitcoin and endorses any exchange. His fans could follow and buy bitcoins on this exchange, generating revenue for this exchange.”
There’s a lot of truth in that. Cryptocurrency exchanges make their money from transaction fees, and more users means more transactions.
But just like banks, cryptocurrency exchanges compete to attract users to their platforms. Coinbase, for example, charges you a fee to buy crypto with your bank account, but waives that fee if you set up direct deposit. You’ll always pay a fee when you sell, but that’s true for bitcoin no matter what exchange you use or whether you use one, because the “miners” who log your transaction on the blockchain don’t. free.
Why trust a crypto exchange to make your purchase on a schedule when you could time the market yourself? The boring answer comes from investor and author Ken Fisher, who once wrote, “Time in the market beats the beat of the market, almost always.
Think of it this way: Bitcoin at the time of this writing is trading at $41,000 per coin. Although some people have probably made a lot of money by accurately predicting the bottom of a price drop, everyone who bought bitcoin in 2018 – whether they bought $17,089 on January 5 or $3,183 the following December 14 – is richer today, especially if they made regular purchases during that year. That’s the beauty of cost averaging.
That said, getting paid in crypto is not the same as a pre-tax contribution to a retirement account. Your automatic crypto purchase is made from your after-tax earnings and will not reduce your taxable income. Using your bitcoin earnings, whether to make a purchase or converting it back to dollars, is a taxable event if your investment has appreciated. But for some people (including me!), the cost of spending bitcoins, much like the cost of early access to a retirement account, is a feature, not a bug. “If you save effortlessly and spend a chore, most people will probably spend less,” wrote another poster on the r/Bitcoin subreddit.
What if you think bitcoin’s most valuable days are behind it? Well, I won’t try to convince you otherwise. But I will say that it is very easy to dive into crypto without believing that it will replace the dollar. And it’s getting easier every day.