The guidance issued during former President Biden's administration warned companies to be "extremely cautious" before adding cryptocurrencies to employee investment menus.
Written by: He Hao
Source: Wall Street Watch
On Wednesday, the Trump administration is moving to rescind the guidance issued by the U.S. Department of Labor in 2022, which opposed including cryptocurrencies as investment options in corporate 401(k) retirement plans.
The guidance from former President Biden's administration warned companies to be "extremely cautious" before adding cryptocurrencies to employee investment options. The 2022 guidance also threatened to initiate "investigative projects" against plans that offered cryptocurrency investments to employees through investment plan options or self-directed brokerage accounts, which significantly dampened the interest of some 401(k) service providers, including Fidelity, in entering the cryptocurrency trading market.
Additionally, the U.S. government has expressed its intention to establish closer ties with a broader range of alternative assets and is reportedly considering a directive that would allow 401(k) plans to invest in private equity markets.
In a statement released on Wednesday, the Department of Labor stated that the Biden administration's position contradicted the agency's legal obligation to maintain neutrality. According to the statement, the Department of Labor will no longer take a supportive or opposing stance on specific investment options. Labor Secretary Lori Chavez-DeRemer stated:
The Biden administration's Department of Labor chose to tip the scales. We are rescinding this excessive intervention, making it clear that investment decisions should be made by fiduciaries, not dictated by bureaucrats in Washington.
Cryptocurrencies remain rare in 401(k) plans. According to a 2024 report from the U.S. Government Accountability Office, there are currently 69 digital currency investment options available to 401(k) investors through direct investment options or brokerage accounts. The report found that less than 1% of defined contribution plans offer cryptocurrency investment options.
Critics argue that using retirement savings for cryptocurrency assets is inappropriate, as such assets should focus on long-term, stable investments, while cryptocurrencies are susceptible to market volatility. The cryptocurrency industry, however, insists that they are creating fair opportunities for ordinary investors, allowing them to participate early in a potentially high-yield market.
ForUsAll Inc., the first cryptocurrency 401(k) plan record-keeping company in the U.S., attempted to overturn the Biden administration's guidance in 2023 but was unsuccessful, with a judge ruling that even if the guidance were rescinded, the company's business could not be restored.
Analysts suggest that this latest rescission by the Trump administration may reignite market interest, although Wall Street's enthusiasm for introducing alternative investments in 401(k) plans has waned.
However, on Wednesday, Bitcoin did not benefit from this news, experiencing a nearly 3% decline over 24 hours.
Trump Supports the Crypto Space
Once critical of cryptocurrencies, Trump has now shifted to support crypto investments, launching his own TRUMP coin earlier this year. The Trump administration maintained close ties with cryptocurrency industry lobbyists and advocated for the government to establish a digital asset reserve.
Current SEC Chairman Paul Atkins is a well-known advocate for cryptocurrencies, having praised the establishment of a clear and predictable regulatory framework for cryptocurrency exchanges. The SEC's decision last year to approve spot ETFs for Bitcoin and Ethereum was seen as a significant victory for the industry.
Trump's media company, Trump Media, announced that it has reached agreements with about 50 large investors to help raise funds for the establishment of a "Bitcoin vault," further strengthening its ties to the cryptocurrency industry.
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