Fidelity Investments wants to let investors own some of it
In 401(k) retirement accounts. It’s a milestone for cryptocurrency and could be a huge win for Fidelity. However, it also has the potential to spark a regulatory battle over Bitcoin’s suitability for company-sponsored savings plans – and it raises questions about whether investors should own any cryptocurrency at all.
If anyone can get their hands on Bitcoin in retirement wallets, it’s fidelity. The company manages more than $2.7 trillion in 401(k) plan assets, and oversees about a third of the $7.7 trillion held in 401(k) seconds. Fidelity said last week that it would give 23,000 working employers the option to add “digital asset accounts” to their 401(k) plans. The company says it will charge between 0.75% and 0.90% in annual fees for accounts. It aims to have it available by the middle of the year, with more cryptocurrencies likely to appear in the future.
Although Fidelity does not bless Bitcoin as an investment, its move to acquire the asset into 401(k)s is being announced as a stamp of approval for the token. Fidelity’s first client for accounts is MicroStrategy, which has $5 billion in bitcoins on its balance sheet. CEO Michael Saylor, a relentless Bitcoin bull, described it to CNBC as “the perfect asset for a retirement plan.”
Some crypto backers say Fidelity’s statement could be the necessary boost to convince skeptical clients and advisors that it’s time to buy. Rick Edelman, founder of the Digital Asset Council for Financial Professionals, an educational group cryptocurrency. But it’s not certain that the cryptocurrency will soon get a place on 401(k) lists along with mutual fund lists. It remains highly controversial as a long-term possession. There may be strict regulatory opposition.
For most retired savers, Cryptocurrency is a bad idea and not something the average individual should consider, Madeline Hume, Senior Analyst at Morningstar, said.
Bitcoin’s suitability as a 401(k) investment has led to warnings from the Department of Labor, which enforces federal rules for the plans. In March, the Department of Labor warned employers about cryptocurrency, warning that they “should expect to be questioned about how their actions align with their duties of prudence and loyalty.”
Ali Khawar, the Labor Ministry official in charge of employee benefits security, said in a statement to Baron.
Investor protection groups are lining up against this idea, too. More than a dozen endorsed the Labor Department’s warning in a letter to the agency last week. Dennis Kelleher, CEO of Better Markets, an investor advocacy group that signed the letter, said discussions about cryptocurrencies “overshadow the facts that make them highly questionable regarding retirement accounts.”
Employers often act like savings plan nannies—in part to protect employees from high-risk investments and to protect themselves from liability. Some plans won’t make closed-end funds or preferred stocks available in a 401(k), let alone something as risky as Bitcoin. “It appears that offering cryptocurrency adds a layer of complexity that most plan sponsors may not want to consider,” said Wendy Von Wald, director of credit products at Travelers, which sells insurance coverage to plan sponsors and may raise its premiums to employers offering Bitcoin. .
At the moment, Fidelity is unlikely to open the doors to Bitcoin. A spokeswoman said the Vanguard Group, one of the largest 401(k) administrators, has no plans to offer a crypto product. Online broker Charles Schwab declined to comment. Empower Retirement Another principal official did not respond to a request for comment.
However, sincerity has many rewards. The company is building an institutional crypto services business, plans to launch a Bitcoin exchange-traded fund, and has already launched funds that invest in companies with exposure to cryptocurrency. The 401(k) step “is about the next step in the journey as we see blockchain and digital assets take shape and become a larger part of the financial future,” said Dave Gray, Head of Workplace Retirement Offerings at Fidelity.
Investors should not lose sight of the premise behind all this – that owning some bitcoin will boost their portfolio returns. On that, the jury is out. Some studies argue that Bitcoin is not tied to stocks and bonds. That might be attractive in today’s market, where stocks are down 12% this year and bonds are down 9%. But bitcoin, which is down 10%, is also faltering. Although its price has skyrocketed since its launch in 2009, it happened during a period when the cryptocurrency grew from a fringe movement to the upper echelons of the asset management industry, a move that cannot be replicated.
Even Bitcoin proponents say crypto deserves more than a small spot in a retirement savings plan. Matt Hogan, chief investment officer at Bitwise Asset Management, says bitcoin should not exceed 5% of an investor’s portfolio. He said Bitcoin’s dramatic declines are “painful events.” In fact, Bitcoin is down 42% from its highs last November, having recently settled around $39,000.
“It’s always tempting to underestimate retirement savings,” Morningstar’s Hume said. “Everyone has a neighbor or nephew who has had great success with crypto. But there really are no shortcuts to saving for retirement.” B
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