Will retirees invest their retirement pensions in Bitcoin?
The defined contribution (DC) retirement pension commonly known as “401K” has been a main driving force behind the explosive growth of the NYSE. The plan’s current total assets amount to nearly 8 quadrillion KRW. The Dow was around 1,000 in the early 1980s but it surpassed the 10,000 mark in 1999 thanks to the rising trend of retirement contributions. Created in 1880s, the Dow had been rising slowly before it saw a tenfold increase in 16 years mainly owing to massive influx of money from retirement pensions along with tax benefits.
The 401K contributions total in the US jumped from 92 to 385 billion dollars between 1984 and 1990 and swelled to 1.723 billion dollars in 1999. It surpassed 4 trillion dollars in 2013 and continued to increase, reaching 6.7 trillion dollars last year, which converts to about 7.610 trillion KRW. With money pouring in continuously and more financial assets being purchased, it was no surprise that the stock index continued to go up.
As well-known to many, 401K is an employer-sponsored defined contribution (DC) retirement pension plan that lets the pension holder to contribute a certain percentage of monthly salary to the individual pension account and then entrust an external company with managing the fund under his or her own risk. Since this plan is for retirement nest eggs, it needs to be managed as safely as possible, aimed for a reasonable level of profitability.
The COVID-19 pandemic resulted in an unprecedented volatility spike, causing the market interest to plummet and values of major investable assets such as stocks and raw materials to surge to record highs. In turn, 401K asset managers are having a hard time finding suitable investments or good enough hedging (=avoiding risk) means against future drop in asset price. Consequently, they are considering Bitcoin and other cryptocurrencies.
ForUsALL, a small 401K asset management company, released last week in the US an asset distribution product that enables the pension holder to invest up to 5% of the retirement pension fund to cryptocurrencies. This product is designed for investments into up to 50 kinds of cryptocurrencies including Bitcoin and Ethereum and went on sale in July.
It is of course not yet easy to estimate how many future retirees will choose this product, but the product’s release is meaningful because it shows that Bitcoin and other cryptocurrencies have become valid investment options for managing retirement pension.
ForUsALL is not a big asset management company, currently managing about 1.7 billion dollars (about 1.931 trillion KRW) from retirement pensions of about 70,000 employees inside the US, but other asset management companies including Kingdom Trust are also said to be reviewing whether to incorporate cryptocurrencies into their 401K plans.
In the mean time, another encouraging news came out. Senator Cynthia Lummis, who is considered “pro-Bitcoin” in Congress, said in her CNBC interview that she bought her first Bitcoin at 330 dollars and she currently owns 5BTC, adding that she wishes that more Americans would buy and keep Bitcoin to prepare for future. As for specific plans for this, she mentioned a revision to the law to allow investment in Bitcoin and other cryptocurrencies in all 401K products in the US.
Lummis added, “Americans worry about having all of our retirement monies denominated in U.S. Dollars.” She then emphasized on having a “very diverse asset allocation as part of diversification, so you don’t have all your eggs in one basket. “I think one of the strongest stores of value for the long run is Bitcoin, and for that reason, we need to open the door for 401K,” she suggested.
It is only a small number of asset managers that have included Bitcoin in their 401K products, and Senator Lummis’ proposal would most likely not be legislated right away. However, it is a good news for the market that long-term investment in reliable cryptocurrencies is gradually being recognized as a clearly useful means to manage portfolio. Like the NYSE in the past, the cryptocurrency market will most likely see a meaningful growth as Bitcoin exposure in 401K increases. When there are many disappointments and delusions with regards to short-term market price trends in the market, and it is important that we focus on mid- to long-term trend changes.