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In the past week, the Federal Reserve raised a key interest rate by a half percentage point and said that in June it will start a multi-trillion dollar balance sheet contraction. Meanwhile, senators Elizabeth Warren of Massachusetts and Tina Smith of Minnesota raised questions about Fidelity’s recent plan to allow investors to put bitcoin into their 401 (k)s.
I sat down with Jamie P. Hopkins, managing partner of wealth solutions at Carson Group to chat about what the Fed tightening means for retirement investments, and of course, his views on bitcoin.
Crypto in a snap
lost 0.1% over the past seven days, trading at around $36.423 on Thursday, according to CoinDesk data. Ether
was up 0.6% over the seven-day stretch to around $2,738. Meme token Dogecoin
logged a 2.7% loss while another dog-themed token, Shiba Inu
traded 6.7% lower from seven days ago.
Source: CoinGecko as of May 5
Stocks and Bonds
Rising interest rates “are not bad for retirees in general”, Hopkins said in an interview.
“A lot of retirees are looking for higher bond yields, CD yields, fixed income yields. So if you haven’t locked all that in, for near retirees, that can be a little bit better,” Hopkins said.
Meanwhile, for people who stand right before retirement, “a market downturn is actually like a better situation, which does feel counterintuitive,” Hopkins said. “As good stuff goes down, you’re more likely to get upswings through the next couple years of retirement or at least flat. And so you get a higher sustainable withdrawal rate,” according to Hopkins.
Hopkins also said that despite the current macro environment, he prefers portfolios with rising equity portion through the retirement. When performing the Monte Carlo simulations, which model the probability of different outcomes, “portfolios that spin down the bond portions of their allocation earlier in retirement, actually outperform fixed portfolios like 60-40 (60% in stocks, 40% in bonds) or decreasing equity portfolios,” Hopkins said. “And it doesn’t mean you’re buying more stocks, but you’re just not spending them.”
Investing in bitcoin for retirement?
Though Hopkins said it is reasonable to allocate 1% to 2% of the portfolio in cryptocurrencies, he remains cautious. “I think a lot of people are looking in that area for how do I take risks and generate more wealth? I kind of still sit on the side of the investment philosophies around it,” Hopkins said.
Hopkins said he is concerned about the custody risks of cryptocurrencies. He is also worried that many existing crypto projects may fail or be replaced by newer ones, as the ecosystem evolves. Looking back, as of February 2018, about half of initial coin offering projects launched in 2017 went bust, Fortune reported at the time.
Even though the crypto industry has been maturing, it is still at a very early stage, Hopkins noted.
“I think the challenge to that though, is it leaves consumers, the mass, a sense of fear in five years, because they will have experience with stuff that basically disappears,” Hopkins said. “If you just said like, go invest in the stock market, and in five years, half of that’s going to be gone. How are consumers going to feel, right? They’re gonna be a little fearful of the stock market,” Hopkins said.
In addition, though Fidelity Investment plans to provide bitcoin offerings for the 401(k) plans it administers, the reaction from the U.S. Department of Labor could add to employers’ concerns, according to Hopkins.
The department issued a statement cautioning plan fiduciaries to “exercise extreme care” before they considering adding a crypto option to a 401(k) plan’s investment menu.
Fidelity “is gonna make it available, but you still have to have a fiduciary investment committee sign off on it. That’s a lot of risk because if something goes wrong, the Department of Labor has told you to use extreme caution. It’s not a good look, right?” Hopkins said.
SEC’s crypto unit
What adds to the regulatory headwinds for crypto is the latest move by the U.S. Securities and Exchange Commission. The agency said Tuesday that it has almost doubled the positions for its cyber unit and has renamed it as “Crypto Assets and Cyer Unit,” according to a statement.
The unit will have 50 positions, up from 30, and is now responsible for “protecting investors in crypto markets and from cyber-related threats,” according to the statement.
Binance backing Musk’s bid
Binance, the world’s largest crypto exchange, has agreed to contribute $500 million to support Elon Musk’s pending acquisition of Twitter for $54.20 a share, or about $44 billion, MarketWatch’s Emily Bary reported.
Twitter’s board of directors accepted Musk’s bid to buy the company in an April 25 agreement. The deal is subject to shareholder and regulatory approvals.
Crypto companies, funds
Shares of Coinbase Global Inc.
plunged 11.6% to $115.05 on Thursday. It has fallen 6.2% over the past five trading sessions. Michael Saylor’s MicroStrategy Inc.
lost 13.1% Thursday to $318.91, while it was down 20.4% over the past five days.
Mining company Riot Blockchain Inc.
shares were down 12.2% to $10.16, and it was down 7% over the past five days. Shares of Marathon Digital Holdings Inc.
lost 11.6% to $15.70, with a 6.7% loss over the past five days. Another miner, Ebang International Holdings Inc.
lost 16.5% to $0.85, with a 9% loss over the past five days.
shares were down 8.3% to $35.86. The shares have gained 11.1% over the five-session period.
Shares of Block Inc.
formally known as Square, tanked 10.4% to $95.70, with a 8.5% loss for the week. Tesla Inc.
shares lost 7.6% to $879.91 while its shares gained 0.3% for the past five sessions.
PayPal Holdings Inc.
declined 8% to $85.33, and it was down 7.4% over the five-session stretch. Nvidia Corp.
lost 7.6% to $187.9, while was looking at a 5.1% loss over the past five trading days.
Advanced Micro Devices Inc.
dropped 5.5% to $93.99 on Thursday, while it was up 4.7% from five trading days ago.
Among crypto funds, ProShares Bitcoin Strategy ETF
went down 8.7% to $22.72 Thursday, while Valkyrie Bitcoin Strategy ETF
was down 8.6% to $14.1. VanEck Bitcoin Strategy ETF
lost 9.5% to $35.30.
Grayscale Bitcoin Trust
traded down 8.9% to $25.32.
Wall Street Reluctantly Embraces Crypto (The Wall Street Journal)
Gucci to accept crypto in leap for luxury industry (Vogue Business)