Fidelity Tests Waters for Bitcoin in 401(K) Plans


Crypto may be hitting your retirement plan and regulators aren’t happy.

The largest 401(k) provider, Fidelity, announced on April 26 that it will offer employers the option to allow 401(k) participants to invest up to 20% of their retirement savings account in bitcoin.

Fidelity was the first major financial firm to adopt cryptocurrencies, launching Fidelity Digital Assets, a trading and custody platform for institutional investors, as early as 2018. Last year, it also launched a pair of bitcoin exchange-traded funds (ETFs) in Canada.

Calling the plan part of its commitment to the “ever-growing demand for digital assets across all investor segments,” Fidelity Investments saying members of approved plans could invest funds in a workplace digital asset account (DAA) that would hold both bitcoin and money market funds to enable daily trading activity.

“There is growing interest from plan sponsors for vehicles that allow them to provide their employees with access to digital assets in defined contribution plans,” he said. david grayhead of workplace retirement offerings and platforms at Fidelity Investments, “and, in turn, of people with an appetite for incorporating crypto into their long-term investment strategies.”

Read more: US Crypto Consumer: Using Crypto for Online and In-Store Purchases

That was reflected in the PYMNTS US Crypto Consumer survey released earlier this month. It showed that 23% of US consumers, almost 60 million, own or have owned cryptocurrencies in the last 12 months.

See also: The Data Point: 23% of US Consumers Own Crypto in 2021

That represents a 16% increase from the previous year, meaning some 18 million Americans bought cryptocurrency as an investment, to use a blockchain platform, such as buying a non-fungible token (NFT) or investing in decentralized finance. (DeFi), or in to spend it as currency.

In that survey, 55% of respondents — just under 33 million — said they bought it specifically as an investment, suggesting there’s a huge market for Fidelity’s DAA offering.

For one thing, it would be much easier than buying cryptocurrencies privately, which requires setting up an exchange account, with anti-money laundering (AML) identity verification, raising the cash, buying the cryptocurrencies, and then deciding whether to store them in the digital wallet of an exchange or a private one.

Related: 55% of cryptocurrency owners bought it as an investment to make money

just say no

Fidelity’s offer also reflects the company’s belief that its workplace DAA will not be cracked down on by the Department of Labor, which oversees 401(k) plans.

The announcement comes just six weeks after the department not only made clear that he was against the idea of ​​allowing cryptocurrency investments in 401(k), but also said almost flatly that employers could be personally in danger of losses if they allow employees to add cryptocurrency to their 401(k) retirement accounts.

Advising plan fiduciaries to “exercise extreme care” before allowing crypto into their plans, the Department of Labor noted in a March 10 compliance assistance notice that “fiduciaries must act solely in the financial interest of plan participants and adhere to an exacting standard of professional care. The courts have commonly referred to these obligations of prudence and loyalty as the ‘highest known to the law’”.

Noting that a fiduciary’s duties include considering whether a crypto investment option meets those “exigent responsibilities,” the department said, “Fiduciaries who breach those duties are personally liable for any loss to the plan that results from that breach.”

It added: “The failure to remove unwise investment choices is a dereliction of duty.”

In January, the Securities and Exchange Commission denied Fidelity permission to open a US bitcoin ETF, joining many other companies that have been rebuffed by the regulator, which cited concerns that bitcoin markets specifically and cryptography in general are too open to manipulation.

Read more: As New Cryptocurrency ETFs Continue to Spread Across Europe, SEC Quickly Opposes

The Labor Department notice cited the volatility of cryptocurrency prices and their speculative nature, as well as the high number of laundering operations and “widely publicized incidents of theft and fraud.”

See also: PYMNTS Crime Series: Another Day, Another Nine Figure Crypto Hack

The difficulty of evaluating highly technical and hyped promotions, proper valuation of digital assets, and the “evolving regulatory environment” were also mentioned, as was cryptocurrency custody, although Fidelity’s experience in investor token custody institutional makes it easier to answer.

In conjunction with SEC Chairman Gary Gensler’s frequent reference to cryptocurrencies as the “Wild West” of finance, the Department of Labor appears to not only be warning employers, but also providing ammunition for lawsuits.

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