Crypto craze puts retirement savings at risk

Regulators and Congress should protect investors by slamming the door shut on efforts to bring cryptocurrency into the world of retirement savings

Aug 29, 2018 @ 3:00 pm

By Tim Chen

The Securities and Exchange Commission last week rejected nine separate schemes to create the world's first bitcoin exchange-traded fund, which would open the door to investing in cryptocurrency in retirement accounts. This follows the SEC's decision last month to reject the Winklevoss twins' second attempt to list a cryptocurrency ETF on a regulated exchange.

But this issue is by no means resolved. There are more crypto ETF proposals under consideration and on the way.

That's why regulators and Congress need to protect investors and slam the door shut on other efforts to bring cryptocurrency into the world of retirement savings.

Given that bitcoin has lost 60% of its value from its high in December, you'd think most people would be wary of investing in cryptocurrencies.

But the fact is that many more people are still considering taking the plunge into this speculative and risky world. Worse, a new trend is emerging: Americans are thinking about how to fit bitcoin, Ethereum, Ripple and other cryptocurrencies into their retirement plans.

Many advocates have begun writing advice columns and blogs encouraging investors to "diversify" their retirement savings with cryptocurrencies.

If the SEC were to approve such funds, it would turn the world of retirement investing on its head. It would be a huge mistake and harm Americans' ability to save for retirement.

It's one thing for well-heeled investors and blockchain fanatics to dabble in the cryptocurrency exchanges with extra cash. It's another for hard-working Americans to gamble away their nest eggs in the latest investment hype.

Saving for retirement is one of the most important financial decisions that Americans make, yet nearly a third of us have less than $5,000 saved for retirement. That number gets even worse when it comes to millennials: Two-thirds of them don't have a single dollar saved for retirement.

Like the high-volatility funds that were trendy last year, cryptocurrency funds could put retirement funds in great jeopardy. In the last year, bitcoin has fluctuated more than the S&P 500 has since its inception in 1957. There are no fundamentals. It simply fluctuates based on the whims of speculators.

Worse still, this roller coaster may have been intentionally manipulated. The Justice Department and the Commodity Futures Trading Commission reportedly have begun to probe market manipulation in the cryptocurrency space.

Instead, financial advisers should encourage investors to stick to strategies with a proven track record, like saving early and maxing out employee-sponsored 401(k) matching. This may not be the sexiest path, but it will deliver results over time.

Cryptocurrency does not belong in individual retirement accounts or other retirement accounts. Advisers can try to steer investors into safer investments, but Congress also needs to act quickly to ban cryptocurrencies from these types of accounts, just as the law already bans life insurance and collectibles, including most actual coins, from such accounts.

Additionally, the SEC should continue to review crypto ETF applications very closely. And the commission should not take any action on any proposed ETF unless and until Congress acts to clarify the law.

Investing in cryptocurrencies is not diversification. It's gambling the future on an unproven "currency" subject to fraud and manipulation. When it comes to retirement savings, cryptocurrency should be avoided like the plague.

(More: State regulators investigating more than 200 ICOs and cryptocurrency investments)

Tim Chen is CEO and co-founder of NerdWallet, which attempts to give consumers clarity around all of life's financial decisions.


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