Should you be able to have crypto in your 401(k)?
Digital currencies, most notably bitcoin, have generated a lot of attention this year. Should cryptocurrencies be an option for 401(k) participants?
Year to date, bitcoin is up about 37 percent, beating the stock market, as measured by the S&P 500 Index, by far (up 17.6 percent as of July 29, 2021). What is not visible, however, is the wild ride that intervened. Bitcoin reached an all-time high of $64,829 on April 14, 2021, according to CoinGecko (tinyurl.com/ax3p5hh9). On July 29, bitcoin traded between $38,349 and $40,409 (see CoinDesk: tinyurl.com/mj9nceee).
Bitcoin was approved as legitimate government currency in El Salvador in June, with the new law taking effect in September (tinyurl.com/y9wths32). Some NFL players have requested to be paid in bitcoin, as detailed on the website Buy Bitcoin Worldwide (tinyurl.com/53f76w6n ). It was also the currency of choice when hackers demanded payment to end their encryption malware cyberattacks on Colonial Pipeline and JBS (tinyurl.com/324vs6je).
When I last wrote about bitcoin in August of 2017, I noted that “both regulators and speculators have been drawn to this virtual currency. Speculators are attracted by the possibility of outsized returns (and, as with any speculative “investment,” there is a potential for outsized losses). And regulators raise warnings.” That’s one huge point of concern: Four years later, regulators are still sorting out whether cryptocurrencies should be regulated — and if so, how?
The past few months have illustrated some of the issues. In May, during testimony before a House subcommittee (tinyurl.com/ud497mrz), Securities and Exchange Commission (SEC) Chairman Gary Gensler, citing concerns about “greater opportunities for fraud and manipulation,” said he wanted to work “with fellow regulators and with Congress to fill in the gaps of investor protection in these crypto markets.”
On July 7, Sen. Elizabeth Warren, D-Mass., called for answers about the SEC’s authority for protecting consumers who invest and trade in cryptocurrency. In a letter to Gensler (tinyurl.com/t32dxjv7), Warren wrote: “As the cryptocurrency markets continue to grow and expand, the lack of regulation to provide basic investor protections is unsustainable. The SEC regulates national securities exchanges, and cryptocurrency exchanges that operate in a similar manner should be subject to similar regulatory standards.” Warren also noted the “potential need for Congress to take additional action on these matters.”
Warren sent a separate letter later in July (tinyurl.com/4zj74sfp) to U.S. Treasury Secretary Janet Yellen, asking Yellen, in her role as head of the Financial Stability Oversight Council, to “mitigate the growing risks that cryptocurrencies pose to the financial system.”
The SEC’s Office of Investor Education and Advocacy and the Commodity Futures Trading Commission’s Office of Customer Education and Outreach released an Investor Bulletin in June about funds trading in bitcoin futures contracts (tinyurl.com/64v9rhbs), urging investors to “weigh carefully the potential risks and benefits of the investment.”
The future of bitcoin offerings for 401(k) plans may already have arrived. “Alt 401(k),” offered through ForUsAll (forusall.com), allows 401(k) plan participants to direct up to 5 percent of their balances to 50-plus different cryptocurrencies (tinyurl.com/xchmntwt). Coinbase Institutional (coinbase.com) is the cryptocurrency platform for the offering.
If you are a regular reader of this column, you can probably guess what my position might be on offering crypto through a 401(k) plan, a subject I will address in an upcoming column. In the meantime, what’s your position? Would you like to see cryptocurrency in your 401(k) plan? Either email me or take a few minutes to tell me through a five-question survey, the results of which I will share with you in a later column. The survey link is tinyurl.com/yf7cbbcv . If you write to me (readers@juliejason.com), please be sure to include your city and state, and the name of your newspaper.
Julie Jason, JD, LLM, a personal money manager (Jackson, Grant of Stamford) and author, welcomes your questions/comments (readers@juliejason.com). Her awards include the 2020 Clarion Award, symbolizing excellence in clear, concise communications. Her latest book, a curated collection of Julie’s columns, is “Retire Securely: Insights on Money Management From an Award-Winning Financial Columnist.” To hear Julie speak, visit juliejason.com/events.