The recent U.S. Labor Department (DOL) warning to fiduciaries who offer cryptocurrency investments inside 401(k) plans makes sense, one crypto executive told Yahoo Finance.
“I think that the Department of Labor is right to say ‘heed caution,’ and don’t just jump barrel-in to this because it’s popular and you need to offer it — be pragmatic about it,” Chris Kline, COO and co-founder of Bitcoin IRA — an investment platform that allows investors to roll over their IRAs and 401(k)’s into an IRA capable of holding multiple cryptocurrencies — said on Yahoo Finance Live (video above). “But I think the days of saying ‘Bitcoin is a fraud, and it’s over, and it’s gone,’ are behind us.”
The DOL’s action came on the heels of President Joe Biden’s executive order on Wednesday acknowledging cryptocurrency assets as prevalent enough to warrant federal studies and possible regulation. The agency’s Employee Benefits Security Administration said in a compliance assistance release that plan fiduciaries should exercise “extreme care” before offering cryptocurrencies and cryptocurrency-tied investments within 401(k) plans. The agency emphasized that the obligation of fiduciaries to act solely in the financial interests of plan participants is among the “highest known to the law.”
“Fiduciaries who breach those duties are personally liable for any losses to the plan resulting from that breach,” the department’s release said, adding that fiduciaries should not relinquish their legal duty to avoid “imprudent” investment options for 401(k) investors.
The DOL said that it plans to conduct a probe into plans that offer cryptocurrency and cryptocurrency-related investments within 401(k) savings plans, and take action to protect plan participants’ investments. Plan fiduciaries, the department said “should expect to be questioned about how they can square their actions with their duties of prudence and loyalty in light of the risks.”
‘They’re volatile, I’m not going to argue that’
The department centered its concerns around five risks that could make cryptocurrency investments unsuitable as 401(k) plan investments: extreme price volatility, investor and fund manager inexperience compared with traditional investment options, vulnerability to loss and theft, unreliable valuation, and evolving regulation.
“They’re volatile, I’m not going to argue that,” Kline said. “But what’s worse?” he asked, citing headwinds plaguing investors’ ability to save and through 401(k) and other plans.
Klein noted that few U.S. workers have access to 401(k) plans. In 2020, according to Statista and Transamerica Institute, 52% of U.S. employers offered employee-funded plans, 17% offered employer-funded plans, and 41% offered no retirement savings plan at all.
Kline added that plan participation is also lagging and that inflation is arguably decreasing how much money workers can afford to allocate to retirement.
For those and other reasons, Kline expects the labor department’s view on cryptocurrencies will eventually require a paradigm shift. Over the long term, he says, he expects the volatility of cryptocurrency to ease because of its limited supply, making it less susceptible that the U.S. dollar and stocks to inflation. And no exposure to the asset, he said, could ultimately work against investors.
“Now you’re going to have individual agencies make their adjustments as to how they’re going to enforce regulation… I applaud that,” Kline said. “But I think that, combined with the executive order from Biden, it’s time to realize the relevancy of crypto. It’s not going anywhere. So we have to start looking at how is it going to impact the fabric of our economy, and we have to do that cautiously.”
Alexis Keenan is a legal reporter for Yahoo Finance. Follow Alexis on Twitter @alexiskweed.