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How Do I Buy Cryptocurrency In My 401k?

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As the world of cryptocurrency and other alternative investments expands to the mainstream, many potential investors are looking for ways to add these relatively new and unique asset classes to their retirement accounts. However, since many of these speculative assets remain largely unregulated globally, there just aren’t many options to gain direct exposure in a retirement account like an IRA or 401k at work. 


What does the SEC say about crypto in retirement plans?

While there have been numerous attempts to register cryptocurrency ETFs (Exchange-Traded Funds) for instance, the SEC has yet to approve a single of these filings and does not recognize any cryptocurrencies like Bitcoin, as securities. Until that changes, it is unlikely that work retirement plans (401Ks, 403Bs) will begin to offer any funds that hold crypto assets. 


Employer-sponsored retirement plans and cryptocurrency

Work retirement plans typically have a set fund lineup for employees to select their investments from. Plan sponsors and plan advisors act as fiduciaries for the plan and these standards often prevent them from adding highly volatile, largely speculative funds to their menu of available investment options. And even if they could do so, they simply are not available on recordkeeping platforms, due mainly to the SEC’s current stance on the asset class, which prevents the very existence of these registered securities in the first place, at least for the time being. 


What about investing in cryptocurrency in IRAs and Roth IRAs?

IRAs are a bit of a different story. There are a handful of IRA providers that will allow the purchase of several cryptocurrency focused mutual funds. However, these are closed-end mutual funds that are not only expensive, but highly illiquid – meaning it can be difficult to get your money out, once invested. For some with a long time horizon, the sacrifice may be worth it for the exposure to the asset class, but it’s important to understand the drawbacks and obvious risks associated with these closed-end funds. 

Another option, particularly in IRAs held on a brokerage platform, would be to explore more indirect exposure to these assets through the individual stocks (not something we’re big fans of) of publicly-traded companies that are highly correlated with price movements in crypto markets, either because they offer a blockchain product, or because they participate in crypto markets, or hold crypto assets on their balance sheet. Some examples would be the various exchanges that provide retail investors direct access to digital wallets that can buy, sell, and exchange cryptocurrencies on their platforms. Although only one such company is currently publicly listed in the US. 


A word of caution before investing in crypto

But while buying shares of highly correlated publicly-traded companies within an IRA may allow an investor to gain exposure without actually holding the assets themselves, this presents its own set of risks that go far beyond the risks of cryptocurrencies alone. 

At blooom, we understand the curiosity and desire to gain exposure to alternative assets with relatively high long-term return potential that isn’t necessarily correlated with traditional asset classes like stocks and bonds. Many could argue that adding these kinds of alternative assets may actually improve overall portfolio diversification, so long as the exposure is very limited. We recommend using extreme caution and only putting money into these kinds of assets that you are going to be ok with losing. In other words, please make sure you’re taking care of other financial priorities first, like paying down high interest debt, saving for emergencies, and contributing to retirement accounts. And if you are fortunate enough to have extra disposable income after taking care of these other priorities, feel free to dedicate small amounts over time to any speculative assets you want, so long as you understand the risks, and often the gamble you are taking, and aren’t putting your financial future at risk by doing so.  

Cryptocurrencies and their underlying blockchain technology may indeed have a bright future that could very well begin to reshape the global financial system. Many would argue this shift has already begun. But for investors looking to add cryptocurrency exposure to their retirement portfolios, options are currently very limited. And the options that do exist for investors carry significant risks that potential investors should be well aware of beforehand.



The information is provided for discussion purposes only and should not be considered as advice for your investments. The information does not represent a recommendation to buy or sell securities. Investing involves risk. Your investments are subject to loss of principal and are not guaranteed. Investors should consider their ability to continue investing through periods of fluctuating market conditions. Please consult an investment advisor before you invest.


Published on May 28, 2021