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    Even as the crypto market continues to forge an impressive recovery from the 2022 bear market, the industry continues to attract the wrath of regulators worldwide, especially in the United States. Three U.S. financial watchdogs recently issued stern warnings to individuals looking to invest in retirement funds offering exposure to digital assets.

    The U.S. Securities and Exchange Commission’s (SEC) Office of Investor Education and Advocacy, the North American Securities Administrators Association and the Financial Industry Regulatory Authority (FINRA) warned investors that individual retirement accounts (IRAs) that include cryptocurrencies could potentially be classified as “securities,” unless they are registered with the SEC or have a valid exemption certificate.

    Moreover, in the past year, many policymakers have continued to aim at cryptocurrency investment vehicles, such as retirement accounts, citing the string of insolvencies witnessed last year. For example, New York Attorney General Letitia James has repeatedly called for a ban on all crypto-inclusive contribution plans and IRAs.

    Regulators are understandably cautious, with one Canadian teacher’s pension fund, the Ontario Teacher’s Pension Plan, taking a $95 million loss on its substantial stake in the FTX crypto exchange.

    However, some prominent crypto proponents in the U.S. Senate, like Wyoming Senator Cynthia Lummis, believe that Bitcoin (BTC) should be a part of 401(k) retirement packages.

    Are crypto retirement funds a good idea?

    To better understand whether including cryptocurrencies in pension funds makes investment sense, Cointelegraph reached out to Ilan Sterk, CEO of Altshuler Shaham Horizon — an Israeli cryptocurrency custody and trading provider — one of the few crypto firms in the country approved to deal with banks.

    According to Sterk, minimal exposure to digital assets can be a good fit for long-term retirement-centric investments. He added, “For pensioners, an investment portfolio can be allocated between various assets like securities, bonds, hedge funds, digital assets and private equity. Blockchain and digital assets are considered a relatively new field but with high utilization and a wide ecosystem, so allocating a conservative portion to such investments might be fruitful.”

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    That said, he does agree with the warnings issued by the SEC and FINRA, especially since they pertain to retirement accounts containing the hard-earned savings of many people. Sterk said that crypto is a “very volatile investment for a retirement account” and, therefore, people investing in such offerings should take the time to understand the inherent risks associated with digital assets. He added:

    “I believe that regulators are crucial to organizing new investment fields like digital assets as well as for laying out clear guidelines, especially for pension accounts, so investors won’t find themselves penniless upon reaching retirement.”

    In 2021, the Israeli Capital Market, Insurance and Savings Authority published similar guidelines for local institutions — including provident funds and pension funds — telling institutions that should they decide to invest in Bitcoin, they must detail and explain their decision to the regulatory body.

    Extreme volatility of crypto

    Wade Wang, the founder and CEO of Safeheron — a digital asset self-custody provider that recently integrated its multi-party computation multisignature security solution with MetaMask — told Cointelegraph that it is “not recommended” that retirement funds seeking long-term returns be exposed to cryptocurrencies, at least in the near future. He added:

    “Investing in digital assets comes with high uncertainty and severe volatility. So far, any coins or tokens within the crypto landscape are circulated within their own individual markets. The circulation between these different ecosystems, especially traditional ones like pension funds, requires considerably greater development.”

    Wang highlighted that crypto should not be viewed differently from other investment forms. As the industry matures and novel Web3 applications emerge, many traditional funds — including family offices and retirement funds — will continue to eye digital assets.

    Zoomers wants crypto in their retirement funds

    According to a survey conducted by U.S. asset manager Charles Schwab during Q4 2022, almost 50% of zoomers and millennials want to see crypto become a part of their 401(k) retirement plans. Millennials were born in the early 1980s to mid-1990s, while zoomers were born in the mid to late 1990s and early 2010s.

    Analysts for Charles Schwab found that 46% of zoomers and 45% of millennials would like to invest in cryptocurrencies as part of their retirement plans. Moreover, the survey found 43% of zoomers and 47% of millennials had already put a portion of their savings into digital assets outside their retirement plans.

    Younger investors want a wider range of investment choices, like cryptcurrencies. Source: Charles Schwab

    These results lay in stark contrast to another survey conducted by the investment manager, which found that just 31% of Gen X’ers and 11% of boomers — those born anywhere between the mid-1940s to late 1970s — were keen on investing in digital currencies through their 401(k) retirement plans.

    Bill to remove roadblocks

    On Feb. 15, Alabama Senator Tommy Tuberville announced he would reintroduce the Financial Freedom Act to allow American 401(k) retirement plans to gain cryptocurrency exposure. The bill, first tabled in the Senate in May 2022, seeks to reverse a policy from the U.S. Department of Labor (DOL) directing the type of investments allowed in 401(k) plans, including crypto.

    In Tuberville’s words, the bill seeks to prevent the DOL from pursuing enforcement actions for individuals utilizing brokerage windows to invest in digital assets. “The federal government shouldn’t choose winners and losers in the investment game. My bill ensures that everyone who earns a paycheck has the financial freedom to invest in their futures however they see fit,” Tubernille added.

    The bill’s co-sponsors include several prominent pro-crypto senators, including Cynthia Lummis, Rick Scott and Mike Braun. In a December 2022 interview, Senator Lummis stated that despite the recent market meltdown, she is still quite comfortable with the idea of Americans incorporating Bitcoin into their pension funds.

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    Similarly, on Feb. 14, Florida Representative Byron Donalds said he wanted to table a bill similar to Tuberville’s in the House of Representatives. Both Donalds and Tuberville are likely to face stiff resistance from members of the Democratic party, as Senator Elizabeth Warren has repeatedly expressed her concerns about crypto being included in 401(k) plans. Senator Roger Marshall also shares a similar stance.

    What lies ahead?

    Since the beginning of 2022, the DOL has warned pension fund owners about crypto, asking them to exercise extreme caution when dealing with cryptocurrencies, citing the risk of fraud, theft and loss of funds. Other regulators have also adopted similar stances across the globe. As crypto adoption grows, time will tell how legislators come to view this novel asset class, especially from a long-term investment perspective.

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