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Should the next change to your 401k plan be the addition of a cryptocurrency fund? A few recordkeepers have made it possible to offer a cryptocurrency fund in 401k plans. Here’s why I think adding a cryptocurrency fund is a bad idea.

Bitcoin is exciting!

Every so often new investments emerge that generate all kinds of FOMO and require a YOLO attitude to invest in. Bitcoin (and cryptocurrencies) are all that right now.

These “investments,” along with meme stocks, have generated some of the most eye-popping returns during the current bull market. And as long as there is stimulus money sloshing around and people who have nothing else to do with it, these “investments” will remain popular places for some individuals to speculate.

Eventually, the Fed will take away the punch bowl (causing interest rates to rise and equity markets to fall), and Congress will stop direct-depositing stimulus money into everyone’s bank accounts.

What do you think will happen to the value of Bitcoin then?

I think the ride down might be just as exciting as the ride up!

With stock markets falling and interest rates rising while the economy cools off a bit, it may be just a touch harder to make the case that Bitcoin is worth $40,000, $50,000 or $100,000 per “coin,” especially when there are more than 70,000 other cryptocurrencies to choose from.

Can you tell me again how Bitcoin is valued?

Can someone run the method they are using to value Bitcoin, or any cryptocurrency, by me again? What sort of earnings does it generate? Are more or less earnings expected to be generated in the future? Oh, Bitcoin doesn’t generate any earnings, really?

What about dividend payout? Is it strong compared with the market? You know there is no yield available in fixed income investments anymore. You’re kidding, Bitcoin doesn’t pay dividends?

It must pay interest then, right? Who would buy something as an investment that generates no earnings and pays no dividends or interest? Nope, Bitcoin doesn’t pay interest either.

Can we use our old friend, the Capital Asset Pricing Model, to value Bitcoin or any cryptocurrency? Uh, no, I don’t think so.

So what is the value of Bitcoin, and most other cryptocurrencies, actually based on? Speculation that they will be worth more in the future than they are right now? Not sure I am familiar with that valuation model.

That’s OK, Bitcoin is just like gold!

That’s a relief. Gold at least has some industrial uses and is used in jewelry as well. So there is some floor value that the price of gold just can’t decline below. So if I invest in gold, I can’t possibly lose everything.

What critical use, that isn’t going away anytime soon, provides a floor value for Bitcoin? Oh, ransomware payments. And, I believe, it is the currency of choice for international crime syndicates to launder money and avoid taxation. Sound like something you would like to be a part of?

With gold, should the power grid go down for an extended period of time, you can take some of your gold from your safe at home, put it in your wheelbarrow and trade it for food. Investing in gold can be a tangible experience. That helps maintain its value.

Unfortunately you can’t take the lines of code you have purchased that are sitting on a server somewhere, put them in a wheelbarrow and trade them for food if the power grid fails. I know you’ve seen images of an actual Bitcoin, but, unfortunately, those were just artistic renderings. Bitcoin is intangible.

So it would seem that in times of trouble, investors might be selling their Bitcoin and buying more gold. That might not be good for the value of Bitcoin.

In addition, because cryptocurrencies are intangible, they are more subject to loss, theft and fraud. And don’t lose your password, that is the quickest way to become separated from your virtual wallet.

Everyone will be using cryptocurrencies to buy everything soon

Not if the U.S. and China have a say in things. Both are diligently working on developing their own digital currencies. Neither country is likely to allow its monetary policy to be hijacked by a random cryptocurrency or two.

I’m not going to fight the Fed and China and expect to win. I think the chance of Bitcoin or any other cryptocurrency becoming the new world currency is unlikely.

Oh, and you’ve heard that everyone is buying cryptocurrencies now, right? According to Bloomberg, 95% of all Bitcoin is held by 2% of all Bitcoin account holders. And, CNBC reports that a total of 13% of all Americans have bought or sold cryptocurrencies.

Most 401k participants like and understand volatility

As an adviser working exclusively with 401k plans and their participants for more than 30 years, I can tell you that the vast majority of plan participants want to sell every investment they have when markets are crashing and buy whatever is soaring when markets are rising.

If there is one thing that 401k plan participants need a lot of help in understanding, it is volatility.

Bitcoin and other cryptocurrencies are probably the most volatile of all “investments.” Many times when the value of Bitcoin or other cryptocurrencies falls, it is for unexplainable and/or unexpected reasons. But that can happen with any investment.

What is different with Bitcoin and cryptocurrencies is the magnitude of the movements. When there is negative news (Surprise — you can’t buy a new Tesla using Bitcoin anymore!) there is a rush to sell that is not constrained by any exchange rules or limits (since none of the cryptocurrencies trade on an exchange). No one knows what these “investments” are really worth and there is nothing to provide a floor value. So prices drop like a stone.

The fact that no one regulates cryptocurrencies makes them more attractive to some, but much more dangerous to the average investor.

Who may get sued?

You may get sued! Adding a cryptocurrency fund to a 401k plan right now is very risky.

As an employer plan sponsor you have the obligation to offer investment options in your plan that are prudent and that you understand. Does anyone understand what the value of most cryptocurrencies is now or is likely to be in the future? Can anyone make a prudent investment case for offering a cryptocurrency fund to investors (your employees) who rely on you to perform due diligence on their 401k investment options?

Your 401k participants trust you to offer them quality investment options in which they are not likely to lose money. That doesn’t appear to be the definition of a cryptocurrency fund.

What to tell employees

Right now, anyone interested in speculating in cryptocurrencies should do so in their personal investment or IRA accounts. At the moment, there is no good reason to offer a cryptocurrency fund in a 401k plan.


About the Author

Robert C. Lawton, AIF, CRPS is the founder and President of Lawton Retirement Plan Consultants, LLC. Mr. Lawton is an award-winning 401(k) investment adviser with over 30 years of experience. He has consulted with many Fortune 500 companies, including: Aon Hewitt, Apple, AT&T, First Interstate Bank, Florida Power & Light, General Dynamics, Houghton Mifflin Harcourt, IBM, John Deere, Mazda Motor Corporation, Northwestern Mutual, Northern Trust Company, Trek Bikes, Tribune Company, Underwriters Labs and many others. Mr. Lawton may be contacted at (414) 828-4015 or

About Lawton Retirement Plan Consultants, LLC

Lawton Retirement Plan Consultants, LLC (LRPC) is a Milwaukee, Wisconsin-based independent, objective Registered Investment Adviser (RIA) providing investment advisory, fiduciary compliance, employee education, provider management and plan design services to employer retirement plan sponsors. The firm specializes in sustainable investment strategies for retirement plans and is a pioneer in the field. LRPC currently has contracts in place to provide consulting services on more than a half billion dollars in plan assets. For more information, please contact Robert C. Lawton at (414) 828-4015 or or visit the firm’s website at Lawton Retirement Plan Consultants, LLC is a Wisconsin Registered Investment Adviser.

Important Disclosures

This information was developed as a general guide to educate plan sponsors and is not intended as authoritative guidance, tax, legal or investment advice. Each plan has unique requirements and you should consult your attorney or tax adviser for guidance on your specific situation. In no way does Lawton Retirement Plan Consultants, LLC assure that, by using the information provided, a plan sponsor will be in compliance with ERISA regulations. Investors should carefully consider investment objectives, risks, charges and expenses. The statements in this publication are the opinions and beliefs of the commentator expressed when the commentary was made and are not intended to represent that person’s opinions and beliefs at any other time. The commentary does not necessarily reflect the opinion of Lawton Retirement Plan Consultants, LLC and should not be construed as recommendations or investment advice. Lawton Retirement Plan Consultants, LLC offers no tax, legal or accounting advice, and any advice contained herein is not specific to any individual, entity or retirement plan, but rather general in nature and, therefore, should not be relied upon for specific investment situations. Lawton Retirement Plan Consultants, LLC is a Wisconsin Registered Investment Adviser and accepts clients outside of Wisconsin based upon applicable state registration regulations and the “de minimus” exception.