Cryptocurrencies are becoming an investment target for retirement plans. The US Department of Labor issues five major warnings: will investigate related fund institutions.

In light of the increasing openness of U.S. retirement fund management companies towards cryptocurrencies, the U.S. Department of Labor has issued a statement indicating that it will investigate trustee fund institutions, while also highlighting the five common risks associated with cryptocurrencies as a warning.

Cryptocurrency Becomes Target for Retirement Funds

The Employee Benefits Security Administration (EBSA) of the U.S. Department of Labor released a announcement on 3/10, stating:

The Department of Labor is aware that fund companies marketing cryptocurrencies to 401K retirement plans has become more common. Fiduciary fund institutions should adhere to and fully understand that retirement plans should prioritize the economic interests of users, ensure careful selection of investment targets, and should not transfer responsibilities to users' trustees.

Five Major Risks of Cryptocurrency

The EBSA presented five major risks of cryptocurrency:

1. High Volatility: The SEC has previously cautioned about the highly speculative nature of cryptocurrencies, citing reasons such as valuation, speculative activities, false trading volumes, theft, and fraud.

2. Difficulty in Making Informed Investment Decisions: Cryptocurrencies often boast novelty and excess profits, making it difficult even for professional institutions to assess whether it is a hype, leading investors to have high hopes for high returns and a low understanding of risks.

3. Custody and Trading Record Suspicions: Unlike traditional assets that have custody and trust accounts, digital assets are stored in digital wallets with codes. Forgetting private keys may lead to permanent loss of assets, and other storage methods may be susceptible to hacker or theft attacks.

4. Valuation Concerns: Experts believe that cryptocurrency valuation is extremely complex, with valuation models differing from traditional stock value analysis, and may lack consistency in reporting standards and data completeness compared to traditional investment institutions.

5. Evolving Regulatory Environment: Cryptocurrency regulations may continue to evolve, including the sale of specific cryptocurrencies possibly constituting illegal sales of securities, while market participants and operators may operate outside regulatory oversight.

As previously reported, a cryptocurrency report released by the global credit rating agency Standard & Poor's pointed out that the interest in cryptocurrencies by U.S. states and local governments is growing. Some local governments have accepted digital currencies as tax and payment tools, and even some retirement funds include cryptocurrencies in their investment targets.

Given the concerns mentioned above, the EBSA plans to launch an investigation project to evaluate brokers offering such investments, to assess whether they have prudently weighed the risks before implementing cryptocurrency investment plans and whether they align with the principle of prioritizing the economic interests of entrusted users.