(401k Specialist) Bitcoin isn’t a big deal in retirement investing yet, but many small steps are being taken that are cracking the door open a little wider to the traditionally conservative “set-and-forget” crowd.
It’s already in some IRAs, and is getting a foot in the door with 401ks.
While 401k participants might not be banging down the door of their plan sponsors to provide access to bitcoin investing today, who’s to say tomorrow’s plan participants—once some fiduciary, security and regulatory barriers are cleared—won’t be?
Not too far down the road, could fiduciary issues arise from not offering access to cryptocurrency? It’s notoriously volatile, but the gains have far exceeded any other asset class in recent years.
After trading for merely a few hundred dollars as recently as 5 years ago, bitcoin has more than doubled so far in 2021, and the price of one bitcoin currently sits above $60,000, not far from its all-time high.
That all-time high could be eclipsed this week, with Coinbase Global Inc., the fastest-growing cryptocurrency exchange, set to make its public market debut Wednesday, trading on the NASDAQ Exchange at a valuation that could approach a staggering $100 billion.
The event is widely viewed as a major validation for the entire cryptocurrency and blockchain industries, and proof that cryptocurrencies are gaining traction in achieving mainstream acceptance.
Significant steps toward that mainstream acceptance have seemingly been happening on a regular basis lately. In December 2020, MassMutual announced it purchased $100 million in bitcoin for its general investment account. Tesla disclosed in February it bought $1.5 billion in bitcoin. Morgan Stanley announced March 17 that it would be the first big bank to give wealthy clients access to funds that enable bitcoin ownership, followed closely by rival Goldman Sachs making a similar move.
Many other examples exist [ie: Microstrategy], and many people figure it’s only a matter of time before the Securities and Exchange Commission opens floodgates by approving Bitcoin Exchange Traded Funds.
Advisors are increasingly bullish: 15% expect the price of bitcoin to exceed $100,000 within five years, up from just 4% last year (Note: Bloomberg’s April edition of Crypto Outlook boldly predicted bitcoin could approach a staggering $400,000 by the end of 2021). Meanwhile, the fraction expecting bitcoin’s price to fall to zero decreased sharply, from 8% in 2020’s survey to 4% this year. In the 2019 survey, 14% of surveyed advisors thought the price would fall to zero.
More and more coverage of crypto mentions that we are reaching the tipping point. While retirement plans with their conservative-leaning investment menus are trailing further behind, there is a growing chorus of financial professionals who believe bitcoin, with wider institutional interest and wider access to funds, will become a bigger part of IRAs, 401ks and estate plans.
With a long enough timeframe to avoid being shaken out by a pullback, it is not unthinkable (given bitcoin’s incredible 10-year performance and prospects for the coming decade) that perhaps 3%-5% of retirement portfolios could be dedicated to bitcoin in the not-too-distant future. While it’s a much easier fiduciary hurdle right now for IRAs than 401ks, the potential is too big to ignore.
What follows are a few examples of recent bitcoin developments of note to the retirement industry, both domestically and abroad.
Bitcoin IRA clients invest $100 million in 30 days
Bitcoin IRA, which bills itself as “the world’s first, largest, and most secure digital asset IRA technology platform that allows users to buy, sell and swap cryptocurrencies for their retirement accounts,” announced on March 19 that over $100 million had been invested into “IRA Earn,” its new interest-earning Bitcoin IRA platform, in its first 30 days.
Retirement account owners can use the platform to increase the yearly return of their Traditional and Roth IRAs, and/or 401ks. “For example, at the current rate, someone with $100,000 in cash could earn $30,000 via IRA Earn in just 5 years,” Bitcoin IRA said in a statement. “This means clients taking advantage of this program can potentially earn faster and retire sooner with more money in their Bitcoin IRAs and/or 401ks.
Investors can create an account today, deposit funds into a self-directed retirement account, and then enroll in Bitcoin IRA Earn. “Unlike traditional banks where the average savings rate is only 0.05%, the IRA Earn program offers rates approximately 100x higher, up to 6% annually, based on the blockchain’s unique ability to remove the middleman,” the statement continued.
Since 2016, Bitcoin IRA has processed nearly $1.5 billion in transactions. Bitcoin IRA’s user count surpassed 100,000 in Q1 2021, a 107% increase from a year ago.
Kiwi retirement fund allocates 5% to BTC
As previously reported by Cointelegraph, KiwiSaver, a $350-million retirement plan operated by New Zealand Funds Management, recently allocated 5% of its assets into bitcoin. At the time, James Grigor, CIO at NZ Funds, said Bitcoin’s similarities to gold make it an attractive asset for life and annuity firms, and another set of opportunities outside the usual traditional asset route.
According to Grigor, NZ Funds amended its offer documents back in 2020 to include cryptocurrency investments in its catalog, a move which allowed the company to purchase BTC back in October when it was trading around the $10,000 price mark.
In less than six months, NZ Funds’ KiwiSaver product is now likely sitting on about a six-fold profit on its bitcoin investment.
Ary Rosenbaum: Bitcoin in 401ks a bad idea
Let’s pump the brakes a bit here. Of course not everyone is bullish on bitcoin in 401ks. For example, Ary Rosenbaum, author and ERISA/retirement plan attorney for his firm, The Rosenbaum Law Firm P.C., posted a “brief” brief about Bitcoin on March 30, entitled, “Yes, Bitcoin in 401(k) plans is a bad idea.” In its entirety:
Over the 30 years of investing, I have seen nothing like my investment in bitcoin and other digital currencies. There have been swings of more than 10% a day and I’m up over 100% since first starting investing this [last] summer.
Yet, what might be great as an individual investment would not make sense as a participant-directed 401k investment. If private equity/hedge funds aren’t a truly proper 401k investment, don’t expect bitcoin and other forms of digital currency as 401k investments as long as they’re volatile and unregulated.
Bitcoin ETFs likely coming, but when?
In late March, the SEC formally acknowledged a Bitcoin ETF proposal from VanEck, starting the clock on a 45-day approval timeline.
Most experts say approval within that timeline is extremely doubtful (extending the review period—which has a maximum of 240 days—is likely), but the SEC is increasingly feeling the pressure from a range of firms who have gone through the filing process only to be stonewalled by the regulator for failing to hit a target that has moved once again.
Meanwhile in Toronto, Canada, the first Bitcoin ETF approved in North America, the Purpose Bitcoin ETF, announced on March 18 that it had passed the billion-dollar mark in assets under management just one month after its launch. Hitting the milestone so quickly, according to Purpose Founder and CEO Som Seif, proves that investors are seeking convenient, safe access to cryptocurrencies afforded by ETFs.
“We’ve got a number of firms that have either gone through the filing process or have previously filed but are waiting for more clarity,” Todd Rosenbluth, head of ETF and mutual fund research at CFRA Research, told CNBC’s “ETF Edge” on April 5. “The SEC is less likely to try to pick a winner, we think, as to who comes first and we’re more likely to see them—if they do approve any ETF—to approve multiple bitcoin-related ETFs… We think we’re likely to see one in the coming year or two, but we don’t have a firm timeframe as to when the answer would be yes.”
With a more crypto-friendly SEC Chair in Gary Gensler now working with “crypto mom” Republican SEC Commissioner Hester Peirce, most believe Bitcoin ETF approval is only a matter of time.
While ETFs have not made major inroads into the 401k market long dominated by mutual funds to date, that could change with a hot product like a Bitcoin ETF.