The tumbling and zigzagging of stocks in the wake of Russia’s invasion of Ukraine has left global investors scampering for safe havens for their hard-earned fortunes. In what appears to be a weaponization of the economy, the majority of global investors are ether scooping up stakes in gold or crypto funds.
A recent study by Dynata revealed that over 40% of people aged 18 to 34 years own crypto. US investors had their hopes of amassing crypto millions dwindled after US. President Joe Biden’s executive order on crypto regulation.
But why?
Both the SEC and DOL caution that virtual coins are highly speculative. The SEC explains that the value of virtual currencies is not backed by any tangible assets like gold or cash. It is purely sentiment-driven; what finance experts like professor Burton Malkiel would call the “greater fool theory. ”A simple change of opinion could have an irreparable effect on people approaching retirement. That’s why the US government thinks that this type of investment isn’t a safe retirement plan.
“Cryptocurrencies differ greatly from the typical traditional retirement investment options and can pause a challenge even for experienced analysts to assess and give them a proper valuation”
A report by DOL, on the 10th of March 2022 indicated that crypto providers present them as uniquely innovative investments that offer a quick path to mammoth profits. It’s challenging to differentiate hype from reality, which makes crypto a dangerous 401(k) plan. On the other hand, there are undersized data that investors can adequately lean on to evaluate the potential performance of such investments. Experts are still tussling with how to value digital assets, as traditional methods such as interest and credit models do not hold water in this domain.
Specialists assert that over 23% of crypto have been disappeared through loss of wallet passwords or simply being forgotten by the holders. The current value of these losses, according to Chain Analysis stands at about $140 billion, Metaworldgambler.com reported. Cyber attacks on blockchain wallets are also rising fast. Scammers get away with an estimated $10 million worth of virtual assets daily, as reported by Atlas VPN. Some people opt for cold wallets but this does eliminate the risk of losing their holdings.
All hope is not lost
Most crypto die-hards may have marred judgment when it comes to this topic but let’s not call a spade a big spoon. Bitcoin fell by over 40% in 2021 before going on a bullish move. Are you ready for this ravaging roller coaster on your 401(k) portfolio?
Although it’s advisable to avoid investing your retirement funds into digital assets, take these steps if you must invest in crypto.
- Ensure your 401(k) funds are safely kept aside in a tested and tried traditional retirement investment plan.
- Cut your expenditure on non-essential such as luxury and use that to invest in crypto.
- Follow a proper asset-allocation model to distribute your investment.
- Open an account with a regulated exchange like Coinbase to manage your investment.
Bottom line
The SEC might go after fiduciaries who have been misleading their clients regarding this kind of investment. Such a move will not pass without a negative effect on the industry. So, if you are heavily invested in virtual currencies, better be on the lookout to avoid being found on the wrong side of the market.
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