AARP Senior Policy Expert Warns Bitcoin Is ‘Not Appropriate For Retirement’ As Coinbase Offers Crypto To 401(k)s


Coinbase CEO Brian Armstrong is tapping a new pool of customers by helping to provide Bitcoin for certain retirement plans. Photo by Matt Winkelmeyer / Getty Images for Vanity Fair

Getty Images for Vanity Fair

Leading cryptocurrency exchange Coinbase has partnered with small 401 (k) plan provider ForUsAll to offer employees crypto exposure through their retirement plans. Employees of the participating companies are allowed to use a “crypto window” – similar to the brokerage window offered in many conventional 401 (k) s – to invest up to 5% of their retirement savings in over 50 cryptocurrencies, including Bitcoin, Ethereum and Litecoin.

However, the announcement that cryptocurrencies will be included in some retirement plans was not warmly received by many, including David John, a senior policy advisor at the AARP Policy Institute and the assistant director of the Retirement Security Project at Brookings. While John is one of a growing number of traditional investors to take crypto seriously, he doesn’t think it has any place anywhere near employee retirement portfolios – at least not yet.

“Crypto itself is fascinating and intriguing when it starts to develop, but it’s still in its infancy. And it’s definitely not suitable for retirement investments, ”says John. “The fact is, when you invest in retirement you want growth and limited volatility. The older you get, the less you want your portfolio to fluctuate up and down because it makes planning your retirement income very difficult. ”

The goal of retirement accounts for people of all ages, he says, is to increase earnings over time (tax deferral) and then reduce risk as they age – that’s essentially the target date, the standard investment in a growing number of 401 (k) s, do. Although alternative investments such as commodities are sometimes part of target date funds, they are usually counter-cyclical, meaning they rise when the market falls and vice versa. John says there isn’t enough data yet to determine if a crypto asset will match that bill.

“Yes, we can point out that there are times when it correlates with this, this and the other index or asset or something along these lines,” says John. “But we don’t know why at this point. And we don’t have solid records to show that this is a consistent pattern of behavior. “

ForUsAll, founded in 2012 and headquartered in San Francisco, manages $ 1.7 billion in pension fund assets for 70,000 employees – a tiny fraction of the $ 21.8 trillion of defined contribution retirement assets (i.e. 401-Ks and IRA) in the United States U.S., late 2020 Chief Investment Officer David Ramirez, says more than 60% of the provider’s 400 employer clients have shown interest in the plans in the past three months. The move also represents a new source of customers for Coinbase, which went public in April 2021 and is now valued at $ 46.29 billion.

Investment opportunities with the original cryptocurrency Bitcoin are already becoming increasingly popular through products such as Bitcoin IRAs, which are offered by companies such as CoinIRA or Bitcoin IRA. Even larger firms have started offering Bitcoin as an investment option, albeit less directly. For example, Fidelity Investments, based in Boston, enables customers to invest in cryptocurrencies through products such as the Grayscale Bitcoin Trust and Osprey. Fidelity launched a new digital assets platform last October and recently filed for a Bitcoin ETF with the Securities and Exchange Commission.

“Relatively small allocations in cryptocurrencies can lead to significant expected return benefits without significantly increasing the risk,” says Rameriz. “That’s the magic of diversification. However, given the volatility of cryptocurrencies, it is crucial that we not only provide access, but also training, guidance and guard rails to ensure that investors use cryptocurrencies appropriately. “

While fixed income expert John disagrees that Bitcoin is ready for 401 (k) s, ForUsAll argues that not offering crypto exposure exacerbates structural inequality by not giving everyday investors access to a source of investment income for the wealthy . “Over 60% of professional investors now say that cryptocurrencies play a role in their portfolios,” wrote Ramirez. “Leading institutions like Harvard, Yale and Brown already have exposure to cryptocurrencies. Excluding the average retired investor from this asset class will put them structurally at a disadvantage. “