Employees of some companies will soon have a new option in their retirement accounts: crypto. But government regulators remain cautious about Bitcoin and other digital currencies and warn that the volatile assets are speculative.
- In a sign cryptocurrencies are moving further mainstream, retirement account provider ForUsAll will start offering in July a 401(k) option that allows employees to invest in the digital currencies.
- ForUsAll's said its cryptocurrency offering is a response to high demand from both employees and employers and can help improve diversification and returns in an investment portfolio.
- Government regulators warn that cryptocurrencies are highly speculative.
ForUsAll, a 401(k) provider that administers retirement accounts for about 400 employers, said this week it’s launching a platform called Alt401(k) that will allow participants to put their money in alternative investments, including cryptocurrencies, in addition to the more traditional options like mutual funds and exchange-traded funds (ETFs).
Starting in July, employees of companies that sign up for the platform will be able to transfer up to 5% of their balances into a secure account where they will be able to buy, hold, and sell more than 50 different cryptocurrencies. Participants will also be able to allocate 5% of future contributions to the account. Cryptocurrency exchange operator Coinbase will manage the trading and custody of the digital coins.
The new 401(k) offering highlights the diverging views of cryptocurrencies held by the general public on the one hand and by government regulators on the other. Acceptance of cryptocurrencies is becoming more mainstream each day, with corporate giants like Visa and PayPal allowing users to make purchases with crypto, and mobile payment service Venmo now offering users the option of trading the digital coins on its app. Even some Wall Street firms and financial advisors have warmed up to the idea of crypto assets as an investment option, primarily because their clients are clamoring for them.
Volatile and Speculative
But regulators and politicians have been less enthusiastic. The Securities and Exchange Commission (SEC) has called the Bitcoin futures market “highly speculative,” saying in a statement that “investors should consider the volatility of Bitcoin and the Bitcoin futures market, as well as the lack of regulation and potential for fraud or manipulation in the underlying Bitcoin market.” SEC Chairman Gary Gensler said last month in a CNBC interview, “I don't think there's that investor protection for Bitcoin investing at this point in time.”
The warnings echoed comments about the speculative nature of Bitcoin made by Federal Reserve Chairman Jerome Powell in March. And on Thursday, a Bank of International Settlements committee released a proposal suggesting that banks that invest in some cryptocurrencies give them a 1,250% risk weight. That could mean that banks would have to set aside enough capital to cover the entire amount of their crypto holdings—$1 in capital for each $1 worth of Bitcoin the bank holds, for example.
“Cryptoassets have given rise to a range of concerns including consumer protection, money laundering and terrorist financing, and their carbon footprint,” the committee said.
A Role to Play
Nevertheless, David Ramirez, co-founder and chief investment officer of ForUsAll, said there can be a place for crypto in a retirement account, and both employers and employees want it as an option.
“Over 60% of professional investors now say that cryptocurrency has a role to play in their portfolios. We also looked carefully at the academic research that showed holding small amounts of cryptocurrency—up to 5%—as part of a diversified portfolio can increase expected growth without materially increasing risk,” Ramirez said in an email.
The new crypto options offered by ForUsAll will not be the first time investors have had exposure to crypto in retirement accounts, but they will offer more direct access and to a wider selection of cryptocurrencies.
For several years, the Grayscale Bitcoin Trust (GBTC), which is publicly traded the same way as an ETF or any other security, has been available in retail brokerage and retirement accounts like 401(k)s and Individual Retirement Accounts (IRAs). GBTC allows investors to have exposure to Bitcoin without buying the digital currency directly, but it trades at a premium to Bitcoin itself. There are also self-directed IRAs that allow Bitcoin investing.