By Laura Zindel and Cindy Sandomenico
Digital assets such as cryptocurrencies and non-fungible tokens (NFTs) are growing and disrupting the way consumers and businesses pay, bank, and invest. A recent survey by Capitalize found that 60 percent of respondents would like a cryptocurrency investment option in their 401(k) plans. Several service providers, including Fidelity, have responded to that request by offering 401(k) participants direct but limited cryptocurrency investment options. Meanwhile, earlier this year, the Department of Labor (DOL) issued a stern warning about cryptocurrencies in 401(k) accounts.
To help plan sponsors better understand digital assets and evaluate whether plan offerings focused on digital assets are a potential fit for their organization, we are sharing a series of articles about the asset class and recent regulatory developments, including the Biden administration’s comprehensive plan for responsible development of digital assets. This first article in the series examines how the federal government is assessing the benefits and risks that cryptocurrencies pose to consumers, investors, and businesses.
In March 2022, the Biden administration issued an executive order calling for the federal government to report its findings on the risks and benefits of cryptocurrencies and other digital assets. For six months, various agencies conducted research and offered recommendations for responsibly developing the U.S. digital asset industry. The result of this work was a fact sheet that was released in September and outlined six main concepts for the development of responsible digital assets nationally and globally: consumer and investor protection; promoting financial stability; countering illicit finance; U.S. leadership in the global financial system and economic competitiveness; financial inclusion; and responsible innovation.
The U.S. government believes that without a solid framework of rules and regulations for digital assets, innovations in this sector could be harmful to consumers, investors, and businesses. In response to the White House calling for research on digital assets, several federal agencies issued reports addressing the potential benefits and challenges in protecting Americans from some of the potential risks posed by digital assets.
The Treasury Department’s report noted that about 12% of Americans own some form of digital asset. While the number of people holding these assets has grown, the volume of fraud and other scams has increased as well. The Federal Trade Commission (FTC) reported that more than 46,000 incidents of cryptocurrency-related fraud occurred between January 1, 2021, and March 31, 2022, valued at more than $1 billion.
The Treasury Department’s report made four main recommendations:
Financial advisors often encourage investors to focus on the long-term and avoid trying to time the market with their 401(k) investments. Similarly, plan sponsors may want to take a long‑term perspective regarding their own approach to digital assets. Given today’s massive surge in the variety and scope of digital assets, plan sponsors should seek to understand their role in the financial landscape before rushing to implement changes.