Self-directed investors and individual retirement accounts with possible exposure to cryptocurrencies were the focus of three financial watchdogs in the US who issued a warning about the risks.
The Office of Investor Education and Advocacy of the United States Securities and Exchange Commission, the North American Securities Administrators Association, and the Financial Industry Regulatory Authority stated in a notice dated February 7 that self-directed individual retirement accounts, or IRAs, may contain assets that carry potential risks, including cryptocurrencies.
The agencies claim that some of the aforementioned IRAs may expose investors to crypto assets that meet the criteria for securities “without SEC registration or a qualified exemption from registration” and without disclosing the information required to make wise investment decisions.
“Some self-directed IRAs may offer investments in ‘crypto assets’ such as ‘virtual currencies,’ ‘coins,’ and ‘tokens’,” said the notice. “Many of the trading platforms for these crypto assets refer to themselves as ‘exchanges,’ which may give investors the misimpression that they have registered with the SEC.”
Following a turbulent year that saw numerous cryptocurrency firms declare bankruptcy and high-profile fraud trials, including the one involving former FTX CEO Sam Bankman-Fried, many lawmakers and regulators have focused on crypto investments, both inside and outside of retirement plans.
Letitia James, the attorney general of New York, suggested banning cryptocurrency investments in IRAs and defined contribution plans in November. Senator Cynthia Lummis, a supporter of cryptocurrency, nevertheless stated in a December interview that she remained in favor of include Bitcoin in 401(k) retirement plans.
Numerous market players have criticized the ambiguity around which crypto projects are regarded as securities or under what regulatory framework they do so in the United States.