Spot Bitcoin ETF Approval Can Allow More Crypto Exposure to 401(k) Retirement Plan

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As the January 10 deadline approaches, retirement savers seeking exposure to Bitcoin without direct ownership of the cryptocurrency coins might soon find the access they desire. U.S. regulators are nearing a decision on whether to permit a spot bitcoin exchange-traded fund (ETF), designed to mirror the real-time price movements of Bitcoin.

Industry participants are optimistic that the U.S. Securities and Exchange Commission will grant approval. Recent reports suggest that the spot Bitcoin ETF approval could come as soon as December 29.

Bitcoin ETF to Fuel Exposure to Crypto

Participants in the industry anticipate that once these offerings are accessible, it won’t only be high-risk traders but also retirement savers who will enjoy increased access to crypto as an asset class. This access may be facilitated either through their company’s 401(k) plans or, if applicable, through solo 401(k)s and self-directed IRAs. Chris Kline, chief revenue officer of Bitcoin IRA said:

“It’s a big step toward mainstream adoption of bitcoin and cryptocurrency. [Investors] will have more options available”.

In recent years, numerous significant pension funds have allocated funds to crypto as an asset class. As per the 2022 CFA Institute Investor Trust Study, 94% of state and local pension plans had some level of exposure to crypto.

Fidelity Investments, the largest 401(k) plan administrator in the U.S., took a step in this direction by introducing a Bitcoin fund option in the fall of 2022. This move enables employees, comfortable with the associated risks and volatility of cryptocurrency, to invest in Bitcoin within their company-sponsored 401(k) plan.

Why SEC’s Approval Will Be A Game Changer

Employers have shown reluctance to include cryptocurrency in 401(k) plans, influenced by the U.S. Department of Labor’s 2022 guidance, as per industry experts.

Although the Department of Labor doesn’t explicitly prohibit crypto in company retirement plans, its March 2022 guidance tilted the scale against plan sponsors considering such inclusion.

If the SEC approves spot bitcoin ETFs as anticipated, there’s a likelihood that more companies will opt to incorporate it into their 401(k) offerings, according to Steven T. Larsen, a certified financial planner and founder of Columbia Advisory Partners in Spokane, Washington.

A spot bitcoin ETF could address certain concerns highlighted by the DOL, such as those related to custody, recordkeeping, and valuation. The presence of a professional manager in a spot bitcoin ETF, responsible for diversifying access to crypto, has the potential to mitigate risks, although it may not eliminate them entirely.