Summary: This week, Fidelity Investments announced that it will soon add Bitcoin as an option in the 401(k) accounts provided by companies. The company indicated that it will allow investors to allocate up to 20% of their contributions to Bitcoin, although employers may set their own limits. Regulatory bodies warned in March that Bitcoin and other cryptocurrencies are fraught with risks and stated that “officials” should exercise “extreme caution” when deciding to include them in retirement plans.
News Details
Currently, there is only one company registered with Fidelity in the plan. MicroStrategy, a company that provides business intelligence and cloud services, will add the Bitcoin option to its 401(k) account later this year. Fidelity plans to offer the new Bitcoin account to more employers, who will have the option to provide it to their employees or not, by mid-2022.
Fidelity stated that it will allow investors to allocate up to 20% of their account balance and contributions to the new Bitcoin account, although employers will be able to set their own limits.
Fidelity is not the first investment company to offer Bitcoin as an option in 401(k) accounts, but it is the largest, and the company stated in a statement that it is the first to offer Bitcoin as a “core” option for 401(k) accounts. ForUsAll, a retirement plan management company, already has a 401(k) option that allows participants to invest in cryptocurrencies, including Bitcoin, but limits investments to 5% of contributions.
Regulatory Concerns
Fidelity’s move was expected to enhance investors’ access to Bitcoin, the most well-known cryptocurrency among thousands of cryptocurrencies. However, government regulators have expressed concerns about the risks of allowing workers to use retirement savings to invest in cryptocurrencies, known for their price volatility. Bitcoin traded at about $38,900 on Wednesday, down about 43% from its all-time high of over $68,000 in November 2021.
In March, the Department of Labor issued guidance to investment firms – like Fidelity – to “exercise extreme caution” before including cryptocurrencies in 401(k) retirement plans. The department stated, “At this early stage in the history of cryptocurrencies, the department is very concerned about the prudence of a fiduciary’s decision to expose 401(k) plan participants to direct investments in cryptocurrencies, or other products that have values tied to cryptocurrencies.”
Impact of Fidelity’s Decision
Some described Fidelity’s decision to add Bitcoin to major retirement plans as likely to have a significant impact on the cryptocurrency market. Anthony Scaramucci, founder of investment firm SkyBridge, tweeted on Tuesday: “Fidelity is about to do for Bitcoin what it did for stocks starting in the 1980s. Bitcoin is a fixed supply, and Fidelity’s distribution engine will increase demand.”
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Sources:
- Fidelity. “Fidelity Investments Advances Leading Position as Digital Assets Provider With Launch of Industry’s First-of-Its-Kind Bitcoin Offering for 401(k) Core Investment Lineup.”
- ForUsAll. “Prudent use of cryptocurrency as a 401(k) Diversifier.”
- Department of Labor. “Compliance Assistance Release No. 2022-01.”
- CoinDesk. “Bitcoin Price | BTC Price Index and Live Chart.”
Source: https://www.thebalancemoney.com/fidelity-to-add-bitcoin-option-to-401k-accounts-5268206
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