While the debate of cryptocurrency in retirement vehicles continues, the swift collapse of the world’s second-largest crypto exchange platform FTX proved a devastating loss for even the largest crypto enthusiasts in the industry.
FTX filed for Chapter 11 bankruptcy, and its founder, Sam Bankman-Fried, resigned as CEO last week after allegations of misused funds and liquidity concerns sent thousands of rattled investors to withdraw funds from the platform, causing a surge of withdrawals that FTX could not meet. The downfall has destabilized the crypto industry and paused what many considered a revolution in the retirement business.
The occurrence also signals what industry skeptics on crypto have long been calling for: more regulation by the Department of Labor (DOL) to meet fiduciary standards required by the Employee Retirement Income Security Act (ERISA). As crypto is currently an unregulated currency, many plan advisors have asked employers to tread lightly on offering the investment in their retirement portfolios.
The FTX scandal also comes at a time when the retirement industry is beginning to dip its foot deeper into the crypto-in-401k waters. The largest 401k recordkeeper, Fidelity, began allowing participants on its platform to invest a limited amount of 401k funds in cryptocurrencies this fall while ForUsAll announced earlier this month that 50 of its 550 clients began allowing workers to invest a small percentage of their retirement savings in cryptocurrency via its Alt401(k) platform, about eight weeks ago.
“Despite the recent downturn, cryptocurrency has been one of the fastest growing asset classes over the last decade because it is the predominant way people invest in blockchain technology,” said David Ramirez, ForUsAll’s CEO and Co-Founder, in their press release announcing the program earlier in November. ForUsAll did not provide a comment on the FTX bankruptcy prior to the publication of this story.
Asked whether the FTX collapse has impacted the volume of 401k crypto interest at Fidelity, a company spokesperson replied: “As we do with any new offering, we design with a customer-first philosophy. Our work with clients is going as expected and we are engaged with clients who have expressed interest and others who are in the process of implementing,” in an email statement to 401K Specialist.
The recent FTX downfall hasn’t curved all stances on crypto trading, especially with a giant like Fidelity still offering its services. Fidelity has already rolled out its waiting list for individual retail brokerage customers interested in crypto trading, called Fidelity Crypto.
One advisor interviewed in a Barron’s story on the platform says Fidelity’s association with crypto adds a layer of credibility for the digital asset. “As an advisor with a younger client base, about 50% [of my clients] currently hold crypto,” said Kevin Lum, founder and CEO of Foundry Financial, in an interview with Barron’s. “I always advise them to stick with reputable exchanges. But with the FTX mess—that advice becomes even more important, and Fidelity is about as reputable as they come.”
In a new interview with 401k Specialist, Ric Edelman said that despite the FTX collapse, he has no doubt that bitcoin will be an investment option in 401k plans moving forward. “Within the next two to three years, it’ll be your routine offering in 401ks around the country,” Edelman said in the interview.
Edelman argued that the FTX debacle has no bearing on the question of whether bitcoin should be allowed in 401k plans—and that the 401k is “actually the best place for bitcoin since the plans are operated so prudently with massive levels of professional oversight.”
However, for other advisors, the FTX downfall proves another reason to steer clear of crypto investments in retirement. “We never ventured into the Bitcoin world or the cryptocurrency world or any of that. We talked about it. We laughed about it,” said Ken Moraif, CEO of Retirement Planners of America and a senior adviser, for Yahoo Finance Live. “A lot of times, people said, man, we’re missing out. And I’m like, no, you’re not. That’s not a space you want to be in.”
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FTX Meltdown Doesn’t Alter Crypto 401k Prediction: Ric Edelman