The turmoil surrounding crypto exchange FTX and Sam Bankman-Fried (SBF) has reinforced regulators’ belief that tighter oversight of the crypto ecosystem is needed. Seeking investor protection from a similar fallout, New York Attorney General (NYAG) Letitia James recommended banning crypto investments in defined contribution plans and individual retirement accounts (IRAs).
In a letter to members of the US Congress, James called for legislation that would prevent US citizens from buying cryptocurrencies and digital assets with their funds in IRAs and defined contribution plans such as 401(k) and 457 plans. However, an October 2022 survey showed that nearly 50% of US-based investors would like to see crypto as part of their 401(k) retirement plans.
James also advocated opposing two laws — the recently proposed Retirement Savings Modernization Act and the Financial Freedom Act of 2022 — that aim to allow investment in digital assets. While highlighting SBF’s involvement in conducting a pyramid scheme and embezzling user funds, James noted four key reasons that explained her call for digital assets to be excluded from IRAs and defined contribution plans, as discussed below.
First and foremost, NYAG pointed out the importance of long-term retirement savings. Second, she highlighted Congress’ historic commitment to protecting US citizens’ retirement funds. As a third reason for banning crypto investments, James cited narratives such as fraud and the lack of adequate guard rails. The final concern related to volatility and custody and valuation uncertainties.
On the other hand, NYAG clarified that there is a difference between digital assets and blockchain technology. She believes US citizens should be allowed to purchase shares in publicly traded blockchain-based companies in retirement accounts.
An immediate action in this regard would be to add subsections to existing laws – 26 US Code §408: Individual Retirement Accounts and 29 US Code §1104: Fiduciary Duties – prohibiting investments in digital assets.
Related: US Senate committee plans FTX hearing for December 1, CFTC chief to testify
US Senators Elizabeth Warren, Tina Smith and Richard Durbin called on Fidelity Investments to reconsider its Bitcoin (BTC) offering for retirees, stating:
“The recent implosion of FTX, a cryptocurrency exchange, has made it clear that the digital asset industry is in serious trouble.”
A Fidelity spokesperson told Cointelegraph that the company has “always prioritized operational excellence and customer protection.”