Riots around the crypto exchange FTX and Sam Bankman-Fried (SBF) reaffirmed regulators’ belief in the need for stricter oversight of the crypto ecosystem. Seeking to protect investors from a similar fallout, New York State Attorney General (NYAG) Letitia James recommended banning crypto investments in defined contribution plans and individual retirement accounts (IRAs).
In the letter addressed to members of the US Congress, James asked for legislation that would prohibit United States citizens from buying cryptocurrencies and digital assets using 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 investors want cryptocurrencies to happen portion of their 401(k) retirement plans..
James also proposed the rejection of two bills — the recently proposed Retirement Savings Modernization Act and the Financial Freedom Act of 2022 — that are aimed at enabling investments in digital assets. While James highlighted SBF’s involvement in operating a Ponzi scheme and misappropriating user funds, she noted four main reasons behind her call for digital assets to be excluded from IRAs and defined contribution plans, as explained below.
First, the NYAG pointed to the importance of protecting retirement savings over the long term. Second, it emphasized the historic duty of Congress to protect the pension funds of US citizens. James used stories including fraud and a lack of adequate guardrails as her third reason for banning crypto investments. A final concern related to the volatility and uncertainty of custody and valuation.
On the other hand, the NYAG clarified that there is a difference between digital assets and blockchain technology. He believes that American citizens should be able to buy shares in publicly traded blockchain-based companies in retirement accounts.
An immediate measure 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 – to prohibit investments in digital assets.
United States Senators Elizabeth Warren, Tina Smith and Richard Durbin asked Fidelity Investments to reconsider its bitcoin (BTC) pension offer to savers 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.”