Ben Strack

Republican Sen. Tommy Tuberville has re-introduced legislation that would prohibit the Department of Labor from limiting the type of investments that self-directed 401(k) account investors can choose, including crypto. 



“Every American should have the right to invest their retirement money how they see fit,” Tuberville, a senator from Alabama, told CNBC Wednesday.



Anthony Scaramucci, founder of investment firm SkyBridge Capital, took to Twitter to show his support for Tuberville’s proposal.&nbsp;



“Have to make this about the future and elect politicians that want to keep the US the mantle of financial services leadership,” Scaramucci tweeted.&nbsp;



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">Senator <a href="https://twitter.com/TTuberville?ref_src=twsrc%5Etfw">@TTuberville</a> gets crypto. We will support him. Have to make this about the future and elect politicians that want to keep the US the mantle of financial services leadership.&mdash; Anthony Scaramucci (@Scaramucci) <a href="https://twitter.com/Scaramucci/status/1625838097547071489?ref_src=twsrc%5Etfw">February 15, 2023</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



The Department of Labor (DOL) said in <a href="https://www.dol.gov/agencies/ebsa/employers-and-advisers/plan-administration-and-compliance/compliance-assistance-releases/2022-01" target="_blank" rel="noreferrer noopener">March 2022 guidelines</a> that the Employee Benefits Security Administration (EBSA) expects to investigate 401(k) plans that offer participant investments in cryptocurrencies and related products.



Tuberville, in response, <a href="https://www.tuberville.senate.gov/newsroom/press-releases/new-tuberville-legislation-promotes-financial-freedom-for-401k-investors/" target="_blank" rel="noreferrer noopener">introduced</a> the Financial Freedom Act last May, calling the guidance at the time “government overreach at its finest.” 



“We’ve got very good support; it just never made it to the floor last year,” Tuberville told CNBC Wednesday. “I think this year we’ve got a good chance…but at the end of the day it’s the right thing.” 



Rep. Byron Donalds, R-Fla., plans to make the proposal in the House on Friday, Politico first <a href="https://subscriber.politicopro.com/article/00000186-5136-de35-afde-71f6e2dc0001" target="_blank" rel="noreferrer noopener">reported</a>. 



Donalds said the Labor Department’s previous guidance is an “unprecedented maneuver” that infringes on economic liberty and free markets.&nbsp;



“To stand up against this gross example of government overreach, I am proud to support Senator Tuberville’s effort in the Senate to protect American investors from unelected Washington bureaucrats,&#8221; he told Blockworks in an email.



The DOL’s March 2022 <a href="https://blockworks.co/news/castle-funds-insurance-crypto">guidelines “chilled interest” by plan sponsors and fiduciaries</a> in direct crypto investments for the time being, Castle Funds Director Dan Hoover told Blockworks earlier this month.



Still, <a href="https://blockworks.co/news/fidelity-delves-deeper-into-crypto-by-allowing-bitcoin-in-401ks">Fidelity said last April</a> that the financial services company would give employers the option to offer bitcoin exposure to employees in their core 401(k) investment lineup. A spokesperson has told Blockworks the company views its Digital Assets Account offering as “a responsible solution to meet the demands of mainstream interest.”



Senators, including Elizabeth Warren, D-Mass., have repeatedly urged Fidelity — <a href="https://blockworks.co/news/senators-fidelity-stop-offering-bitcoin-401ks">as recently as November</a> — to stop its 401(k) sponsor partners from offering bitcoin exposure.



Sen. Tina Smith, D-Minn., said <a href="https://blockworks.co/news/senate-banking-hearing-on-crypto-crash">during a meeting of the Senate Housing and Urban Affairs Committee</a> Tuesday that she believes people should be “pretty much free” to invest their money how they want to, including in crypto.&nbsp;



“But I am really concerned about the potential for these highly volatile assets, and risky assets, to get into our financial system and what impact that might have…for future crypto collapses,” she added.



Fidelity has said it engages in “ongoing dialogue with regulators and policymakers” to ensure consumer protections and educational guidance for plan sponsors.



A Fidelity representative declined to comment on Tuberville’s proposed legislation.&nbsp;&nbsp;The re-introduced law also comes about a week after the SEC and the Financial Industry Regulatory Authority (FINRA) <a href="https://blockworks.co/news/regulators-warn-of-retirement-crypto-risk">again cautioned investors</a> allocating to alternative assets in self-directed individual retirement accounts (IRAs), highlighting crypto as a risk.



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Republican Initiative Would Counter Labor Department Crypto 401(k) Caution

Castle Funds is seeking to fill a gap in the insurance dedicated funds (IDF) space by launching an index fund for investment advisors and insurance professionals that want to allocate client money to crypto.&nbsp;&nbsp;



The California-based digital asset fund manager’s new Castle Digital Index Fund offers exposure to bitcoin (<a href="https://blockworks.co/price/btc" target="_blank" rel="noreferrer noopener">BTC</a>), ether (<a href="https://blockworks.co/price/eth" target="_blank" rel="noreferrer noopener">ETH</a>) and other cryptocurrencies available within an IDF.



IDFs are generally only open for direct investment by insurance carriers. Individuals are typically able to invest in the IDFs through private placement life insurance or <a href="https://www.investor.gov/introduction-investing/investing-basics/investment-products/insurance-products/variable-annuities#What_Is" target="_blank" rel="noreferrer noopener">variable annuity</a> policies they purchase from insurance carriers.



The investment <a href="https://www.castlefunds.com/#Intro" target="_blank" rel="noreferrer noopener">firm</a> partnered with a multinational life insurance carrier, though declined to name which one. The carrier has added Castle’s IDF to its menu of public-market, liquid and illiquid alternatives investment options for policyholders seeking to invest their insurance premiums, a spokesperson told Blockworks



“We’re trying to focus their attention on the crypto aspect of it and make the other aspects of the ownership experience feel as much like a traditional institutional investment product as possible,” Castle Funds Director <a href="https://www.castlefunds.com/team/dan-hoover" target="_blank" rel="noreferrer noopener">Dan Hoover</a> told Blockworks.



In addition to BTC and ETH, Hoover said the fund, set to rebalance monthly, could initially hold cryptocurrencies such as cardano (<a href="https://blockworks.co/price/ada" target="_blank" rel="noreferrer noopener">ADA</a>), dogecoin (<a href="https://blockworks.co/price/doge" target="_blank" rel="noreferrer noopener">DOGE</a>), polygon (<a href="https://blockworks.co/price/matic" target="_blank" rel="noreferrer noopener">MATIC</a>), solana (<a href="https://blockworks.co/price/sol" target="_blank" rel="noreferrer noopener">SOL</a>) and polkadot (<a href="https://blockworks.co/price/dot" target="_blank" rel="noreferrer noopener">DOT</a>).



The weighting of any single asset in the portfolio, which excludes stablecoins, is capped at 35%.



Castle Funds has managed private funds invested in digital assets since 2017.&nbsp;



But Hoover said the firm saw demand from investors wanting a more tax-efficient way to buy crypto indexes, adding he believes insurance dedicated funds present “one of the largest growth areas” in the insurance space.



Investors pay taxes related to gains on the invested premiums when they make withdrawals from the annuity.



“People that are entering into these variable annuity or variable universal life products can come in and say OK, I have a suite of alternative investment options in here … but I need a diversifier,” Hoover said. “So we felt there was a gap in the market for something that was liquid, that had monthly redemptions.”



<h3>Crypto gains another access point </h3>



Castle Funds President Peter Eberle said in a statement the firm has focused on crypto investment strategies that work with existing financial vehicles, such as self-directed individual retirement accounts (IRAs).



“The IDF is an additional access path for investors who are seeking tax- and cost-efficient ways to access these markets, and their portfolio diversification benefits, over a longer term,” he added.



Castle Funds’ existing hedge fund products are accepted by major self-directed IRA custodians, such as Millennium Trust, Entrust Group and Pacific Premier Trust as qualified investments for their self-directed IRA plans.



The company, however, has no plans to offer a fund for such plans that tracks the same index as the Castle Digital Index Fund.&nbsp;



While self-directed IRAs remain a compelling way to defer taxes on tax-inefficient investments like crypto, Hoover said, the Castle Funds director expects 401(k)s, for example, to remain closed to crypto for the time being.



Crypto exposure in IRAs has been a <a href="https://www.wsj.com/articles/investors-who-bet-on-bitcoin-fund-in-retirement-accounts-pay-the-price-11675049243" target="_blank" rel="noreferrer noopener">touchy</a> subject due to Grayscale Bitcoin Trust’s <a href="https://blockworks.co/news/asset-managers-potential-gbtc-takeover" target="_blank" rel="noreferrer noopener">underperformance</a>, as well as <a href="https://blockworks.co/news/ontario-teachers-fund-sank-95m-in-failed-ftx-empire" target="_blank" rel="noreferrer noopener">write-offs</a> by pension funds invested in failed crypto firms <a href="https://www.ft.com/content/67048159-82aa-4e96-bfb3-f1764f632375" target="_blank" rel="noreferrer noopener">Celsius</a> and FTX.



The Department of Labor said in <a href="https://www.dol.gov/agencies/ebsa/employers-and-advisers/plan-administration-and-compliance/compliance-assistance-releases/2022-01" target="_blank" rel="noreferrer noopener">March 2022 guidelines</a> the Employee Benefits Security Administration (EBSA) expects to investigate plans that offer participant investments in cryptocurrencies and related products. 



“This expectation has chilled interest by plan sponsors and fiduciaries in direct cryptocurrency investments for now,” Hoover added.&nbsp;



Similar to the crypto within the retirement arena, the executive said, such exposure in the insurance space is still in its infancy.



The Castle Digital Index Fund is private and limited to insurance companies and qualified purchasers — generally a person holding an investment portfolio with a value of $5 million or more.



“This is the first step,” Hoover said. “The real killer in the variable annuity space is getting through to retail.”



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Castle Funds Seeks To Fill Gap in Insurance With Crypto Exposure

Casey Wagner

<div id="highlights-block_63124e9b6ed36" class="highlights">
 <ul>
 <li>Bitcoin and ether did not show a bounce back after positive economic data</li>
 <li>Traders are starting to doubt what the Fed might decide later this month</li>
 </ul>
 
</div>



Equities and cryptos faltered Friday as traders tried to parse the US economy’s latest turn and what to expect from the Federal Reserve later this month.



Bitcoin lost 1.7% midway through the day’s trading session, pushing the largest cryptocurrency below $20,000 — a key resistance level. Ether was down 1.7%; the S&amp;P 500 declined nearly 1.1%; and the Nasdaq dropped 1.3%. 



The US added 315,000 jobs last month, while the unemployment rate rose for the first time since January, a <a href="https://www.bls.gov/opub/ted/2022/total-factor-productivity-declined-in-60-of-the-86-manufacturing-industries-in-2020.htm" target="_blank" rel="noreferrer noopener">Labor Department report</a> released Friday shows. Hourly wage increases in August eased slightly, coming in at 0.3% for the month.&nbsp;



“The headline NFP [nonfarm payrolls] figure was a little larger than expected at 315,000, which may have created that initial unease as a knockout report could have effectively paved the way for a 75 basis point rate hike this month,” said Craig Erlam, a senior market analyst at Oanda.&nbsp;



The Fed should be happy with the report, Erlam said, as lower-than-expected wage growth and increased labor participation suggest that inflationary pressures may be letting up. But, he added, investors should not count on a&nbsp; less than a 75 basis point interest rate hike yet.&nbsp;



“There&#8217;s been such an effort to put 75 basis points on the table in recent weeks, to change their mind on the back of this would seriously undermine their guidance in future,” Elram said. “If paired with another decent drop in inflation in a couple of weeks, more may be convinced.”&nbsp;



Futures markets now are calling for a 58% chance of a 75 basis point rate hike in September, which would mark the central bank’s third consecutive increase of that size, according to <a href="https://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html" target="_blank" rel="noreferrer noopener">data</a> from CME Group. The probability of a 50 basis point hike is 42%, according to CME.&nbsp;



Central bankers also are looking at manufacturing data, which on Thursday showed continued expansion for the 27th consecutive month, <a href="https://www.prnewswire.com/news-releases/manufacturing-pmi-at-52-8-august-2022-manufacturing-ism-report-on-business-301615866.html" target="_blank" rel="noreferrer noopener">data</a> from the Institute of Supply Management showed.&nbsp;



“The question for markets here is, at what point do investors begin to cheer the resilience of economic growth this year in the face of historically aggressive Fed policy tightening that is now beginning to show signs of being effective in capping and likely reducing inflation pressures?” Tom Essaye, founder of Sevens Report Research, wrote in a note Friday.&nbsp;



Essaye cautioned against investors taking positive economic reports too seriously. There is still a lot of uncertainty about what the future looks like, he added.&nbsp;



“There is a chance traders look past the near-term resilience and continue to expect policy to trigger a very nasty recession sometime down the road, but most of the indicators we follow, including the yield curve, point to a recession in the second half of 2023,” Essaye said.



This story was updated after US market close at 4:45 pm ET.



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Higher-than-expected Jobs Report Not Enough To Push Stocks, Cryptos Green

Sebastian Sinclair

<div id="highlights-block_62aa8aecc7572" class="highlights">
 <ul>
 <li>The US President&#8217;s executive order calls for a unified approach to crypto regulation and innovation</li>
 <li>The Crypto Council for Innovation said Wednesday the Department of Labor&#8217;s guidance, issued in May, takes a one sided-approach to the nascent asset class</li>
 </ul>
 
</div>



A crypto industry body in the US is urging the Department of Labor (DOL) to reconsider its crypto guidance for retirement plans, amid mounting pushback from concerned community members.



The Crypto Council for Innovation (CCI) said Wednesday the DOL&#8217;s guidance is inconsistent with directives from the White House and President Biden’s Executive Order for the nascent asset class.



In a <a href="https://cryptoforinnovation.org/wp-content/uploads/2022/06/Crypto-Council-for-Innovation-Department-of-Labor-Response-Letter_Final.pdf" target="_blank" rel="noreferrer noopener">letter</a> penned to the department&#8217;s Acting Assistant Secretary Ali Khawar, CCI is asking DOL to rescind its Release <a href="https://www.dol.gov/newsroom/releases/ebsa/ebsa20220310" target="_blank" rel="noreferrer noopener">No. 2022-01 guidance</a>, issued in March, that precludes 401(k) administrators from including crypto investment options in their plans.



Regulators are now weighing up whether to issue an official rule that would address the appropriateness of crypto in 401(k) plans, <a href="https://news.bloomberglaw.com/daily-labor-report/401k-crypto-investment-restrictions-eyed-by-labor-regulators" target="_blank" rel="noreferrer noopener">Bloomberg reported</a> Wednesday.



DOL&#8217;s guidance imposes a higher standard of care for crypto when compared to other financial options for 401(k)s by taking a one-sided and highly negative view, according to CCI.



The DOL is tasked with overseeing the security of the retirement, health and other workplace-related benefits of US employees.



It comes as the department stares down a legal challenge by 401(k) provider <a href="https://cms.blockworks.co/labor-dept-crypto-guidance-is-arbitrary-and-capricious-forusall-lawsuit-alleges/" target="_blank" rel="noreferrer noopener">ForUsAll</a>, which filed its lawsuit earlier this month claiming the department&#8217;s move to restrict the use of crypto in retirement plans is “arbitrary and capricious.”



A month after the DOL&#8217;s guidance was issued, Boston-based financial services provider <a href="https://cms.blockworks.co/fidelity-delves-deeper-into-crypto-by-allowing-bitcoin-in-401ks/" target="_blank" rel="noreferrer noopener">Fidelity Investments</a> moved to allow individuals to allocate a portion of their retirement savings to bitcoin through the company’s 401(k) investment lineup.



<blockquote class="wp-block-quote">&#8220;CCI is deeply concerned&#8230;based on a factually and legally flawed analysis,&#8221; the council said in its letter. &#8220;We also urge the Department to commence a more open, inclusive and deliberative process to develop guidance for the inclusion of crypto assets on 401(k) investment menus.&#8221;</blockquote>



President Biden’s &#8220;<a href="https://cms.blockworks.co/biden-signs-crypto-executive-order-promoting-responsible-innovation/" target="_blank" rel="noreferrer noopener">Executive Order</a> on Ensuring Responsible Development of Digital Assets&#8221; signed in March of this year, calls for a unified approach to regulating and evaluating cryptocurrencies. 



It marked the first time the executive branch signed such an order for the industry and was welcomed by investors and businesses alike, though it fell short of providing clearer regulatory guidelines many were asking for.



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US Labor Dept. Urged to Rescind Crypto Guidance as Pushback Grows

<div id="highlights-block_6298e85f51b02" class="highlights">
 <ul>
 <li>The Department of Labor in March published compliance assistance for 401(k) plans considering crypto investments</li>
 <li>Fidelity revealed in April that it would permit individuals to allocate a portion of their retirement savings to bitcoin</li>
 </ul>
 
</div>



401(k) provider ForUsAll filed a lawsuit against the US Department of Labor in federal court Thursday, claiming that the agency’s attempt to restrict the use of cryptocurrency in retirement plans is “arbitrary and capricious.”



The suit seeks to prevent the government agency from restricting the types of investments Americans can make within a self-directed brokerage account (SDBA), according to <a href="https://resources.forusall.com/Dkt.%20001%20ForUsAll%20Complaint.pdf" target="_blank" rel="noreferrer noopener">the complaint</a>.



The lawsuit comes after the Department of Labor (DOL) in March <a href="https://www.dol.gov/newsroom/releases/ebsa/ebsa20220310" target="_blank" rel="noreferrer noopener">published compliance assistance</a> for 401(k) plans considering crypto investments and threatened to investigate those that offer such options.



“At this stage of cryptocurrency’s development, fiduciaries must exercise extreme care before including direct investment options in cryptocurrency,” Employee Benefits Security Administration’s Acting Assistant Secretary Ali Khawar said in a statement at the time.



ForUsAll CEO Jeff Schulte noted in a statement that SDBAs have for decades allowed 401(k) holders the ability to invest in a broader range of investments than what is offered by their employers’ fund lineup.&nbsp;



“But now the DOL is trying to change the rules overnight, attempting to restrict the types of investments individuals can choose to make, despite having no legal authority to do so — all because they don’t like a single asset class,” he said. “We won’t stand by while they restrict everyday Americans’ ability to make the most of their hard-earned money.”



A ForUsAll spokesperson told Blockworks the company is hoping for a quick decision, given the concerns expressed in an <a href="https://nam04.safelinks.protection.outlook.com/?url=https%3A%2F%2Fforusall.mxcypress.com%2F6075b737c4fa7570848205fc%2Fl%2FfHNg7R3S3QUOOfLH9%3FmessageId%3DjudtWMga6xFX7V4uN%26rn%3DgIsxWQzVlcvZkI%26re%3DISbvNmLhlGZl1WawJGQsxWYzVncvZmI%26sc%3Dfalse&amp;data=05%7C01%7CSArpin%40bpimedia.com%7Ca325672838a046024e7b08da44b5948a%7Cab457ec51e6c4dd99f08ea5b5fdcfeb5%7C1%7C0%7C637897843921018641%7CUnknown%7CTWFpbGZsb3d8eyJWIjoiMC4wLjAwMDAiLCJQIjoiV2luMzIiLCJBTiI6Ik1haWwiLCJXVCI6Mn0%3D%7C3000%7C%7C%7C&amp;sdata=%2FxnLSWvruWhmswlYuIPsnsAS3pg3r48kUIVLLiaV9tA%3D&amp;reserved=0" target="_blank" rel="noreferrer noopener">open letter</a> from players in the traditional 401(k) industry to Khawar. 



ForUsAll <a href="https://cms.blockworks.co/retirement-investment-provider-introduces-alt-401k/" target="_blank" rel="noreferrer noopener">began allowing</a> employers to provide alternative investment options within 401(k) plans last year. The company noted that it would be using Coinbase Institutional for the custody and exchange of digital assets. 



Financial services giant Fidelity Investments <a href="https://cms.blockworks.co/fidelity-delves-deeper-into-crypto-by-allowing-bitcoin-in-401ks/" target="_blank" rel="noreferrer noopener">announced</a> in April that it would permit individuals to allocate a portion of their retirement savings to bitcoin through its 401(k) platform.



Schulte told Blockworks at the time that crypto access in 401(k) plans is inevitable, adding that he expected <a href="https://cms.blockworks.co/will-competitors-follow-fidelitys-lead-in-401k-bitcoin-offering/" target="_blank" rel="noreferrer noopener">other large institutions to follow</a> Fidelity’s lead over time. 



Fidelity’s announcement was met with opposition from Sens. Elizabeth Warren, D-Mass., and Tina Smith, D-Minn., who wrote a letter to Fidelity CEO Abigail Johnson last month, calling crypto investments “a risky and speculative gamble.”



Fidelity privately responded to the senators to address some of their concerns, a spokesperson told Blockworks.&nbsp;



“The [Digital Asset Account] offering features several institutional consumer safeguards including but not limited to, excessive trading oversight, investing limits, transparency, market-leading education, and cyber-security features,” the representative said. “Fidelity looks forward to continuing the dialogue on this exciting offering with federal regulators and policymakers consistent with our approach to many new services we offer our customers.”



Moe Vela, a former advisor to then-Vice President Joe Biden, said he believes many cryptoassets, including bitcoin, are not optimal for retirement plans because of their inherent volatility, vulnerability and lack of predictability.&nbsp;&nbsp;



“I believe it would be prudent to mitigate risks at all times by seeking to invest in cryptocurrencies that are backed by real assets and transparent in their infrastructure and operations,” he told Blockworks.&nbsp;&nbsp;



<blockquote class="wp-block-quote">“At the same time, I respect the right of workers, retirees and pension fund managers to choose how they invest their funds.”</blockquote>



Sen. Tommy Tuberville, R.-Ala., last month <a href="https://www.tuberville.senate.gov/newsroom/press-releases/new-tuberville-legislation-promotes-financial-freedom-for-401k-investors/" target="_blank" rel="noreferrer noopener">introduced the Financial Freedom Act</a>, which would prohibit the DOL from limiting the type of investments that self-directed 401(k) account investors can choose through a brokerage window.



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