The U.S. Securities and Exchange Commission (SEC) has warned Americans over the risk of including assets like cryptocurrencies in their self-directed individual retirement accounts (IRAs) as well as unregulated trading platforms posing as exchanges.
“In addition, many of the trading platforms for these crypto assets refer to themselves as ‘exchanges’, which may give investors the misimpression that they have registered with the SEC.”
A self-directed IRA is held by a custodian and allows for investments in a wider range of assets than other types of IRA, including cryptocurrencies, promissory notes and precious metals. Investments in such assets come with a risk of fraud as well as a potential lack of information and liquidity.
‘Informed Decisions’
Federal authorities have raised concerns about crypto assets being included in retirement plans. In March last year, the Department of Labor (DOL) issued guidelines stating that the Employee Benefits Security Administration (EBSA) aimed to investigate 401(k) plans that allow cryptocurrencies and related products.“Participants are less likely to have sufficient knowledge about these investments, as compared to traditional investments, or to have the technical expertise necessary to make informed decisions about investing in them.”
Crypto Losses
The warnings about cryptocurrencies being included in retirement accounts come as some investors in these assets have suffered massive losses in recent years.Grayscale Bitcoin Trust, a $14.6 billion trust used by individual investors to bet on bitcoin in their retirement accounts, has fallen from its peak of around $56.70 in February 2021 to currently trade at $11.75, a decline of almost 80 percent in just two years.
Following the implosion of the FTX crypto exchange last year, at least 15 state and municipal pension funds in the United States are believed to have suffered losses.
In January, the White House warned against greenlighting legislation that would allow institutions like pension funds to “dive headlong” into crypto markets.
“In the past year, traditional financial institutions’ limited exposure to cryptocurrencies has prevented turmoil in cryptocurrencies from infecting the broader financial system. It would be a grave mistake to enact legislation that reverses course and deepens the ties between cryptocurrencies and the broader financial system,” the White House said.