Bitcoin mouse piggy bank
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The crypto 401(k) may have to wait

Protocol Fintech

Good morning, and welcome to Protocol Fintech. This Monday: the obstacles to bitcoin in your 401(k), unrest at Coinbase and Grayscale’s battle plan.

Off the chain

The question isn’t whether we’re in crypto winter, it’s whether your down vest will be enough to get you through it. Unless you’re Michael Sonnenshein of Grayscale, who told my colleague Ben Pimentel that it’s an open question. Mike Novogratz of Galaxy Digital, who now says his luna tattoo is a reminder to avoid hubris, is more bearish, saying the crypto markets may have to wait until the fourth quarter for the Fed to ease up.

— Owen Thomas (email | twitter)

Crypto is far from retirement

You’d think the last thing people would want to bet their retirements on now is crypto, given the plunge in digital asset prices. The Department of Labor has made its opinion clear, telling plan providers in March to exercise “extreme care” before including crypto in their retirement plans. But Fidelity, a big player in the 401(k) world, and ForUsAll, a roughly 10-year-old startup, are plunging ahead. ForUsAll actually sued the department over its guidance.

The Department of Labor didn’t mince words in its crypto warning. Cryptocurrencies, it said, pose “significant risks of fraud, theft and loss.” And that was before the UST meltdown!

  • The Employee Benefits Security Administration detailed Labor’s arguments against cryptocurrencies: Speculative and volatile investments harm participants approaching retirement. Even experts have trouble agreeing on a way to value them. The risk of hacking raises custodial issues.
  • On top of that, the agency pointed out, there’s the evolving regulatory environment, which means fiduciaries will have to carefully watch state and federal rules to protect plan participants. (Ironic, perhaps, because the Department of Labor is partly responsible for feeding that uncertainty!)
  • The agency vowed to investigate any plans that offered cryptocurrency.

Fidelity and ForUsAll argue the agency overstepped in warning of investigations. Both are challenging the guidance.

  • ForUsAll took the stronger step of filing a lawsuit arguing that the department violated the Administrative Procedure Act. It complained that EBSA imposed an “extra care” standard for cryptocurrencies that differed from other asset classes.
  • Fidelity’s Dave Gray urged the department to reconsider the guidance for a variety of reasons, including its conflation of bitcoin with less widely traded cryptocurrencies. The agency, he wrote, did not clearly define which investments its guidelines applied to, and he also opposed the “extreme care” standard. ERISA, the law under which the Department of Labor regulates workplace retirement plans, already requires fiduciaries to assess whether investment options are prudent, and doesn’t allow the department to make its own judgments, Gray wrote.
  • ForUsAll has implemented guardrails for crypto investing in its plan design. It limits crypto to 5% of a portfolio and also caps the crypto allocation in ongoing contributions at 5%. Fidelity, so far, is working with MicroStrategy, a software company with a sideline in bitcoin investing, to offer bitcoin to its employees in retirement accounts; they can allocate up to 20% of savings to bitcoin.

Regulatory clarity may take some time. The new Lummis-Gillibrand crypto bill only indirectly addresses crypto in retirement accounts.

  • The Responsible Financial Innovation Act calls on the comptroller general to study “retirement investing in digital assets” and deliver a report by March 2023.
  • President Biden’s executive order on crypto is likewise vague on the issue.
  • Sen. Tommy Tuberville introduced the Financial Freedom Act in May. It explicitly allows plans to offer crypto through self-directed investment options.

The arguments about crypto in retirement plans reflect broader disagreements about the asset class. Ric Edelman, financial adviser and author of “The Truth About Crypto,” compared bitcoin to the Model T in an interview with MarketWatch, and decried the Department of Labor’s “unjustified paternalistic attitude.” But whether you’re a bitcoin maxi or a crypto skeptic may be beside the point. As Wendy Von Wald, fiduciary product manager at Travelers, pointed out, “fiduciaries must act in the best interests of plan participants.” Until it’s clear that offering crypto fits that bill, the legal uncertainty may be enough to keep most of the retirement world from following Fidelity and ForUsAll down the crypto path.

— Leah Zitter (email | twitter)


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On the money

On Protocol: The CFPB is probing “employer-driven debt,” consumer debt incurred at work to pay for required gear and training. The inquiry comes at a time when companies are increasingly offering different financing products to their employees, often in partnership with fintech companies.

Mastercard is bringing its networks to NFTs. In an expansion into the Web3 space, the payments giant partnered with Immutable X, Candy Digital, The Sandbox, Mintable, Spring, Nifty Gateway and MoonPay to let consumers use their Mastercard to buy NFTs.

Also on Protocol: Grayscale is ready for a potential legal brawl with the SEC over its bitcoin spot ETF application, CEO Michael Sonnenshein told Protocol. With a new high-profile legal hire, Grayscale is preparing for any type of outcome of the application.

The Stellar-MoneyGram deal could help get your money into crypto. Consumers without a bank account or credit card can now bring fiat to a MoneyGram location to convert it to crypto, and vice versa.

Revolut is making USD transfers to the U.K. fee-free for businesses. Business customers can now receive USD payments up to $1 million via the Automated Clearing House Network, a move to enable foreign transfers without using SWIFT, though that network will still be an option.

The unrest at Coinbase

Employees are pushing Coinbase to remove three top leaders over actions "that have led to questionable results," according to a now-deleted petition that was first published on CEO Brian Armstrong said Friday the demands were "really dumb on multiple levels."

The petition, titled "Operation Revive COIN," called for Chief Operating Officer Emilie Choi, Chief Product Officer Surojit Chatterjee and Chief People Officer LJ Brock to be fired from Coinbase. Employees listed eight plans they said were carried out under those executives' direction, including Coinbase's struggling NFT marketplace; the decision to rescind new job offers; and a since-reversed push to hire for thousands of roles "despite the fact that it is an unsustainable plan and is contrary to the wisdom of the crypto industry."

Employees also alleged a "generally apathetic and sometimes condescending attitude" from the three executives and wrote that the company has been unable to put out "any higher or better quality products and services" despite hiring more employees.

Read the full story on

— Sarah Roach (email | twitter)

Coming up

The Fintech South conference is starting on Tuesday. The two-day event will be held in Atlanta at the Georgia World Congress Center. Speakers include EY partner Jamila Abston, Global Payments President Cameron Bready, and Apple’s Cherie Fuzzell. (That name seems familiar.)

The Generations 2022 conference also begins Tuesday. The two-day conference will be held in Charlotte, North Carolina, featuring speakers from Credit Karma, The Clearing House, Oracle and others.

The Invest 2022 conference is starting on Thursday. The two-day conference will be held at the Hilton Midtown in New York City, and will feature speakers from Fidelity, Citibank, J.P. Morgan and others.


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Thanks for reading — see you tomorrow!

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