Two weeks ago, US President Donald Trump signed an executive order that looks set to allow alternative assets into workplace pension plans. Private equity, real estate and crypto assets fall under this alternative umbrella.
The order would effectively allow defined-contribution pension plans in the US to include bitcoin and a few other cryptocurrencies as part of their diversified portfolios. More than 90-million Americans save for retirement in these employer-sponsored retirement plans.
If things go Trump’s way, it will not only open another floodgate for institutional capital into crypto but also give Americans exposure to legitimate and proven growth investments such as bitcoin.
To be clear, the executive order does not mean it’s law just yet. It’s more of a firm request for the secretary of labour and other regulatory bodies to speed things along. They have 180 days to clarify their position on these alternative investments, and which laws would need to be changed.
A quick recap of how employer pension plans work: the investments that go into these plans are decided by asset managers, who, as things stand in the US and most other countries, are limited to traditional investments such as stocks and bonds. That’s about $12-trillion collectively in these US pension plans, excluded from growth opportunities in alternative assets such as cryptocurrency.
Investing is never about betting the house; it’s about having responsible allocation to proven investments
In contrast to developments in the US and other countries, South African policymakers are still deciding whether to allow investment funds to invest in bitcoin, not in pension plans, but in the type of funds that make up pension plans. If the global finish line would be for pension plans to allow crypto, then South Africa, still debating whether to allow collective funds to invest, hasn’t even got off the starting line.
During a recent response to parliamentary questions, finance minister Enoch Godongwana justified the stance against crypto as necessary because “crypto assets are still viewed as risky investments”.
Board Notice 90 is the regulation that defines which assets and types of securities may be included in a collective investment scheme, which covers unit trusts, ETFs, money market funds and similar regulated fund types in South Africa. Among other investments, it permits traditional ones such as equities, money market instruments and bonds. But crypto is strictly verboten.
South Africans are being left behind in the rapidly changing global financial system, where bitcoin and its ilk are viewed as legitimate investment instruments by many of the biggest institutions in the world. The BlackRock iShares Bitcoin Trust ETF in the US now has $70bn of assets under management, and it reached this milestone faster than any other ETF in history — faster than any gold ETF. That says something about appetite and opportunity.
Investing is never about betting the house; it’s about having responsible allocation to proven investments. Exposure to crypto assets could give South African investors a stake in the future of digital finance and enable them to grow their wealth.
De Wit is country manager at Luno South Africa
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