Cryptocurrency is coming to retirement plans. ForUsAll Co-Founder and Chief Investment Officer David Ramirez joins Yahoo Finance Live to discuss.
JARED BLIKRE: Bitcoin in your 401(k) could happen soon. And I'll tell you what. Coinbase is teaming up with For Us All, and it could be coming to a 401(k) near you.
We talked about this story before earlier this week. And today we have the chief investment officer David Ramirez here to tell us all about it. This is really fascinating. And I guess I have to think, well, yeah, of course, this was going to come. But you're one of the first, if not the first. How did this project come about? And how did you develop these ideas?
DAVID RAMIREZ: Yeah, well, you know, we've been looking at this space for quite a while, paying close attention to the growing body of academic literature showing that cryptocurrency, small allocations can have a material improvement to overall expected return and expected risk. So we certainly saw that there was good financial reasons to have a small allocation. But what really blew us away was just how much demand there was, both from plan sponsors who offer for 401(k) plans, and the employees themselves.
- David, what's the case for investing in Bitcoin in this way? I mean, some would argue that there's just way too much volatility to essentially put your money there for retirement.
DAVID RAMIREZ: Yeah, I totally understand. So I think-- look, when we take a step back, there has been a sea change in the investment world over the last few years, with large institutional and professional money managers increasingly taking advantage of alternative asset classes, including cryptocurrency.
Look, you look at the big endowments from Yale, Brown, Harvard, they all have allocations to cryptocurrency in their endowments. Even [? Calpers ?] has allocations or exposure to cryptocurrency via investments that they have in Riot Blockchain and some of their venture funds.
When you look at the overall industry, 60% of institutional investors now say that there is a role for cryptocurrency in their portfolio. And a lot of that has to do with the historical returns and correlations.
When you look at cryptocurrency, Bitcoin in particular, the Sharpe ratio for Bitcoin exceeds that of every other asset class going back to 2014, with really low correlations with other asset classes. So a small allocation is a great portfolio diversifier, or can be a great portfolio diversifier, increasing the expected return, while lowering the risk.
I think there was recently an analysis done by Russell that found that just a 5% allocation to Bitcoin alongside the Russell 1,000 produced excess returns of over 6%. So there's definitely a good reason for doing it. The question is, how can you help employees use that asset class prudently? And that's where it's really critical that we provide both education, guidance, and guardrails so that the average American can make appropriate use of cryptocurrency.
JARED BLIKRE: Well, with all the Bitcoin volatility, we've seen US regulators somewhat hesitant, at least at the SEC level, to approve a Bitcoin ETF. And there are also regulatory concerns that Treasury Secretary Janet Yellen has put forth. I'm just wondering, what kind of hurdles did you have to overcome to bring this to customers?
DAVID RAMIREZ: Yeah, so definitely the 401(k) space is highly regulated. And not only do you have SEC regulations that you have to take into consideration. But you have ERISA, which is the body of law that governs 401(k) plans.
I think with respect to ERISA, you know, there was recent guidelines from the Department of Labor that came out a couple of months ago that looked at how can prudent investment managers include alternative assets in this context that we're talking about, private equity. And some of the key things that they suggest that you look at is, you know, what's the liquidity of the asset class? Can you make sure that people can sell?
Or is it appropriate to put in place caps on allocations to those alternative asset classes? And so we definitely used that guidance, both from the Department of Labor and the SEC in constructing this program.
But at the end of the day, I think all of us are aligned in one key thing. If you're going to provide an alternative asset class to employees, you need to do that within a context that provides support, education, guidance, and guardrails so that employees can use it effectively.
JARED BLIKRE: Well, let me follow up on-- I know you're just offering Bitcoin at first. You have plans for Ethereum, maybe Dogecoin. And how does that fit into what you were just describing? Because people have to be educated the right way. And they have to be suitable for the investment.
DAVID RAMIREZ: That's right. So to be clear, right now when we've launched out this new program, it allows employees to transfer up to 5% of their 401(k) balance into a cryptocurrency window where they can invest in up to 50 cryptocurrencies that are available on the Coinbase platform.
Now, we're not making all cryptocurrencies available to participants. So one of the roles that we play as an advisor is to review what's available on the Coinbase platform, analyze each of the different options available, to ensure that what employees can have access to does actually make sense in terms of a portfolio
You know, Dogecoin is, in fact, available on Coinbase institutional platform. But that's not going to be an asset class that's going to be available-- or a digital asset that will be available to employees.
- And David, you've got about 400 employer clients. How many have signed up for the platform so far?
DAVID RAMIREZ: Yeah, so we're beginning to roll it out. What I can tell you right now is that 60% of all of the companies that come to us are expressing a strong desire to-- an interest in investing-- making cryptocurrency available to their employees.
And that closely matches a lot of the survey data that we see coming out of Gemini that shows that 60% of Americans are interested in investing in cryptocurrency. When we look at employees, look, millennials, 49% of them are already invested in cryptocurrency. And that is one of the hardest groups of employees to engage to start saving for retirement. Our hope is that by making cryptocurrency available, not only can we help improve portfolio expected return and risk, but more importantly, we can make the 401(k) more engaging and relevant in this modern era.
- Yeah, an interesting take there, to get younger people to save up. David Ramirez, For Us All co-founder and chief investment officer. Appreciate you stopping by today.