‘Groundbreaking’ Crypto Index 401(k) Opens $7 Trillion Market Beyond Bitcoin and Ethereum After Huge Price Crash
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Bitcoin’s price crash over the past year, wiping out about $2 trillion in value from the combined bitcoin, ethereum and crypto markets, has sparked fears that extreme crypto volatility could pose a risk to the broader financial system.
Now, controversial plans developed during the last crypto bull to expose 401(k) retirement savings plans to the wild swings in the price of bitcoin are being expanded to include a handful of smaller cryptocurrencies — potentially opening up a nearly $7 trillion 401(k) market to crypto .
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San Francisco-based 401(k) provider ForUsAll will allow employees to invest portions of their 401(k) directly into the cryptocurrencies of the Coindesk Market Select Index (CMIS) — an index designed by Digital Currency Group-owned crypto news site and currently comprised of 28 different coins.
“This is a groundbreaking move to bring crypto to the people,” Jodie Gunzberg, managing director of indices at Coindesk, said in an interview, adding that it mirrors the way investors access the stock market via the S&P 500 and Nasdaq 100 indexes.
The move is a huge expansion of the six cryptocurrencies – bitcoin, ethereum, solana, polkadot, cardano and the dollar-pegged stablecoin USDC – ForUsAll began offering workers last year.
ForUsAll CEO David Ramirez pointed to demands among younger people to invest in crypto and blockchain technology. “Like many institutional investors, they believe blockchain is a potentially transformative technology,” Ramirez said in a statement, adding that ForUsAll has installed guardrails to limit investors’ aggregate 401(k) crypto allocations.
CMIS includes better-known cryptocurrencies such as bitcoin, ethereum and litecoin as well as the likes of AXS, the cryptocurrency of the blockchain-based game Axie Infinity that suffered a devastating $500 million hack last year, and so-called fan token chiliz, whose issuing company Socios has rejected the accusations of price manipulation.
Investment giant Fidelity made headlines last year when it announced it would let retiree savers add bitcoin to their 401(k)s, resulting in the US Department of Labor warning retiree savers about adding bitcoin and crypto to their 401(k)s, warning about the “significant risks and challenges” they posed. ForUsAll sued the Department of Labor over the cryptocurrency warning.
“The atmosphere — YOLO and FOMO for cryptocurrency — are our concerns,” said Labor Department Acting Assistant Secretary Ali Khawar Politico. “Right now you don’t know if you’re betting on the winning horse or not. It’s very speculative.”
Fears about the risks posed by speculative cryptocurrencies to investors and the wider financial system have deepened following the shock collapse of major crypto exchange FTX late last year, the culmination of a series of smaller crypto company bankruptcies throughout the year.
The high-profile FTX collapse and its sister trading company Alameda Research have thrown crypto risk to the forefront of lawmakers and regulators in the US and around the world.
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However, Gunzberg pointed to CMIS’ exclusion of FTX’s exchange cryptocurrency FTT, valued at more than $3 billion before FTX’s implosion and designed to facilitate transactions on the platform, as evidence of the index’s integrity.
“The index rules first eliminated FTT since it was not priced by at least two eligible exchanges,” Gunzberg said. Balanced across different crypto “sectors” such as decentralized finance (DeFi) and smart contracts, CMIS requires cryptocurrencies to meet certain trading criteria before they can be considered eligible for inclusion.
Since its inception last July, the CMIS has fluctuated from a peak of nearly 1,200 points in August to just over 700 points in the wake of the FTX collapse.
The expansion of 401(k) providers further into the volatile crypto market is likely to raise eyebrows among those who have previously warned that the growth of cryptocurrencies could potentially cause a future financial crisis.
“Cryptocurrencies have … enormous inherent risks to our macroeconomic and financial stability,” Reserve Bank of India Governor Shaktikanta Das said in December, it was reported by CNBC.
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