Bitcoin in the 401(k) is becoming a reality for more, despite the warnings

More workers may soon be able to tap into some of their 401(k) retirement savings in bitcoin, as the cryptocurrency delves deeper into the mainstream.

Retirement giant Fidelity said Tuesday it has launched a way for workers to put some of their savings and 401(k) contributions directly into bitcoin, possibly as much as 20%, all from the account’s main list of investment options. Fidelity said it is the first in the industry to allow such investments without having to go through a separate brokerage window, and it has already partnered with one business owner who will add the offer to its plan later this year.

Fidelity’s offering may be one of only a few for a while, given the significant concerns about cryptocurrency risks. Last month, the US government warned the retirement industry to be “extremely cautious” when doing something like this, highlighting how inexperienced investors may not just appreciate how volatile cryptocurrencies can be, among other concerns.

Bitcoin had five days in the last year where it fell at least 10%. Meanwhile, stocks in the S&P 500 have seen only two such declines in the past 50 years. Besides its volatility, there is still fundamental disagreement about the value of bitcoin, or even if it is worth anything at all.

Proponents say cryptocurrencies can boost returns in a well-diversified portfolio, without adding too much risk. This is because cryptocurrencies have not always moved in the same direction as stocks and other investments, although in recent months they have often been amid concerns about rising interest rates.

Some investors may believe in all these benefits of bitcoin, but still would prefer not to have to open a new account to buy bitcoin, learn the intricacies of how to store it or deal with taxes on gains made in the years leading up to retirement. Or they might come to that belief soon, and Fidelity wanted to be ready for them, said Dave Gray, head of workplace retirement offerings and platforms at Fidelity Investments.

“We’ve been developing this, while anticipating some of the workforce trends that we’re anticipating,” Gray said. “Our customers expect us to be at the forefront and develop innovative solutions.”

A big part of the excitement of cryptocurrencies for some traders is how volatile they are. Not only has Bitcoin quadrupled during 2020, but traders can buy and sell it 24 hours a day. Meanwhile, a typical day for stocks on Wall Street lasts only six and a half hours.

But Fidelity’s new account won’t offer that. Its price will be updated once a day, similar to traditional mutual funds. The account will also come with a fee, which can range from 0.75% to 0.90% of assets. This means that between $7.50 and $9 of every $1,000 invested in a bitcoin account will go toward paying expenses each year. This is less than some niche investments but more than vanilla stock index funds, which can be almost free.

Others in the industry are also working on offering similar products. ForUsAll, a 401(k) provider, the company announced a product in June 2021 to allow workers to put some of their 401(k) into cryptocurrencies by sending them to a self-directed window.

CEO Jeff Schulte said the company spoke with the US Department of Labor throughout 2021 about marrying crypto and 401(k) accounts. Even after Labour’s stern warning last month, Schulte said he still expects to launch the product this quarter. ForUsAll plans to require savers to conduct an interactive cryptocurrency risk test before purchasing them, among other steps to educate investors.

“Protecting investors is critical,” he said. “We believe our solution meets all fiduciary standards under ERISA,” the federal law that oversees retirement plans.

Fidelity is also putting what Gray calls “digital speed bumps” in front of investors, forcing them to slow down and consider the risks and rewards of crypto.

It may take some time for most employers to start offering something like this. The plan’s sponsorship board, Council of America, recently asked its members whether the Department of Labor’s warning ever changed their minds regarding cryptocurrencies.

The majority – 57% – said they would not consider crypto to be a viable investment option regardless. Another third said the warning “simply confirms the concern we already have”.

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