"Extreme volatility can have a devastating impact on participants, especially those approaching retirement and those with substantial allocations to crypto," the Department of Labor says.
The U.S. Department of Labor is urging "extreme care" to be taken before crypto investments are offered in 401(k) retirement plans.
In a statement, the government agency pointed to guidelines that fiduciaries need to act solely in the financial interests of clients — and any decision to offer crypto would fall under these rules.
According to the department, the number of firms who are marketing crypto investments for 401(k) plans has risen in recent months — and officials fear this is too risky given the short history of digital assets, adding:
"These investments present significant risks and challenges to participants' retirement accounts, including significant risks of fraud, theft, and loss."
The Department of Labor went on to point to remarks from the U.S. Securities and Exchange Commission, which has branded crypto investments as "highly speculative." It added:
"Extreme volatility can have a devastating impact on participants, especially those approaching retirement and those with substantial allocations to cryptocurrency."
Chasing Big Gains?
With the likes of Bitcoin and Ether known to deliver triple or even quadruple-digit gains in under a year, the department also noted that cryptocurrencies "are often promoted as innovative investments that offer investors unique potential for outsized profits." There are fears that this could encourage inexperienced investors to expect high returns without understanding the risks:
"Cryptocurrencies are very different from typical retirement plan investments, and it can be extraordinarily difficult, even for expert investors, to evaluate these assets and separate the facts from the hype."
Other concerns include the fact that losing a private key can result in crypto being lost forever, and whether digital assets can be valued reliably and accurately. To top it all off, there's still plenty of regulatory uncertainty concerning this new asset class.
The cautionary note comes days after Joe Biden ordered government agencies to work together to formulate a strategy for regulating digital assets.