Reckoning with the Cryptocurrency Collapse and Its Impact on Pensions

“It was nice while it lasted.”

This sentiment is of little comfort to consumers who invested in cryptocurrency. Many felt great promise in its quick rise to prominence and potential to be the next big thing in investing. 

But the spectacular collapse of FTX, a major international cryptocurrency trading platform, sent a shockwave throughout markets and in the hearts of digital investors.1 Digital tokens for FTX are now worthless and the digital wallets of many of its customers sit empty following its declaration of bankruptcy, a far cry from its previous $32 billion valuation.2

It’s not just FTX. Digital currencies lost three-quarters of their value, dropping from around a $3 trillion peak evaluation.2

So, what does the crypto collapse have to do with pensions and retirement investments? Should traditional investors be concerned?

Ripple Effects of the Crypto Collapse

Traditional investors may consider themselves to be observers from afar, assuming that their portfolios aren’t linked to the volatile collapse of digital currency. However, a recent study by CFA Institute revealed that 62% of corporate-sponsored defined benefit plan sponsors and nearly half (48%) of defined contribution sponsors are, indeed, invested in cryptocurrencies.3

But what about those who value the security of government-sponsored pension plans? They are most likely to be invested in such assets, with 94% of state and government pension plan sponsors investing in cryptocurrency.3 

Of concern is that cryptocurrency entities have little federal oversight or protections for customers. As is true of stocks, bonds and other types of securities, the FDIC deposit insurance does not apply to crypto assets and does not protect against the bankruptcy of non-bank entities including crypto companies like FTX.4 

Investors May Seek Stability Amid Volatile Crypto Markets

Advisors have had mixed feelings about cryptocurrencies since they broke on the scene a few years ago. Much like investors, some advisors saw them as the future of investing while others proceeded with caution.

In hindsight, the latter approach may have been a better bet, especially for those who manage employee benefit plans. With so many pension plans and employer-sponsored benefits having a portion of their assets in cryptocurrencies, it stands to reason that there may be a gap between their current value and the amount of benefits promised to recipients. In an attempt to deliver on promises to an increasingly aging beneficiary pool, some may be tempted to invest more deeply in riskier ventures to make up for the difference, potentially perpetuating the problem further.

Advisors can be a respite and voice of reason for risk-averse clients who are deeply concerned about volatile markets and the decline of cryptocurrency. Investors who rely heavily on pension plans may benefit from a conversation around annuities and their ability to help them build their own stream of income.

For example, the Future Income Annuity (FIA), issued by the highly rated CMFG Life Insurance Company, offers a guaranteed, steady stream of income that can’t be outlived. Unlike a traditional pension, however, annuities are backed by the issuing insurance company, so there’s little worry of market risk or loss (as long as the issuer is in good financial standing). 

Investing comes with inherent risks, and the fall of cryptocurrency demonstrates once again that investors need to be cautious when the next shiny thing catches their attention. For risk-averse clients, annuity products may provide an ideal balance of risk and reward.

Contact your wholesaler today to talk through multiple annuity strategies and which types of annuities may be best suited for a given client’s situation. Remember, also, that our Behavioral Finance Approach (BFATM) resources are available to help you and your clients navigate through the emotions and behaviors that can stem from times of uncertainty. Click below to access this helpful library.



SOURCES:, Chairwoman Maxine Waters’ Statement on Recent Binance and FTX Events, November 10, 2022.
2Congressional Research Service, What Happened to FTX and What Does it Mean for Crypto?, Nov. 17, 2022.
3CFA Institute, Enhancing Investors' Trust: 2022 CFA Institute Investor Trust Study, 2022., Fact Sheet: What the Public Needs to Know About FDIC Deposit Insurance and Crypto Companies

MFA, CMGA-5236552.1-1122-1224

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