- Fidelity plans to add bitcoin to its 401(k) options.
- Fidelity says it is responding to the heightened interest in digital assets.
- But critics say investing retirement funds in bitcoin is too risky.
Bitcoin is down more than 16% this year, but that hasn’t dampened enthusiasm for the asset. That’s why Fidelity Investments is launching a bitcoin option for its 401(k) plans, but investors may still want to think hard about whether it’s for them.
The nation’s largest plan administrator said later this year that the 23,000 companies for which it manages retirement plans will be able to offer their employees bitcoin as an investment option. Investors could allocate up to 20% of their 401(k) accounts to bitcoin, although employers will be able to lower that limit.
Cryptocuriosity remains strong
Despite bitcoin’s sharp drop from its November all-time high, the proportion of adults considering buying bitcoin held steady at 21% at the end of January, a morning query survey He showed.
“For owners, the current price of bitcoin represents only a drop, not a permanent loss of value,” wrote Charlotte Principato, a financial services analyst at Morning Consult. “Bitcoin owners are not in the game because they see cryptocurrency as the future of payments or for other idealistic reasons. Instead, 70% of bitcoin owners say making money is their “main reason” for investing.
Fidelity estimates that about 80 million Americans currently own or have invested in digital assets, prompting the plan’s sponsors to address the Increasing demandespecially among younger workers.
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MicroStrategy, whose president and CEO Michael Saylor has been one of the biggest cheerleaders for bitcoin and has added bitcoin to company holdings, it will be the first company to offer bitcoin in its retirement plan through Fidelity.
Dan Casey, investment advisor and founder of Bridgeriver Advisors, doubts employers are asking Fidelity to make Bitcoin available through their 401(k).
“I find it hard to believe,” Casey said. “A lot of the employers I know don’t want it because they’re responsible.”
Plan sponsors are legally responsible for examining investment options offered to employees to ensure they are “prudent,” according to the Department of Labor, which regulates company-sponsored retirement plans. And currently, the department does not consider cryptocurrencies and cryptocurrency-related assets to be prudent.
“I have serious concerns about this course of action,” said Ali Khawar, acting deputy secretary of the Employee Benefits Security Administration. “Right now, these are speculative assets.”
Cryptocurrency and crypto-related investments are too volatile and unregulated, critics say, especially for retirement funds that people need to live out their golden years. But hype like Super Bowl ads and A-list celebrities selling cryptocurrency may be giving people FOMO, or fear of missing out, and making them jump. before fully understanding the risks.
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“Their easy to get carried away in the latest investment craze, and supposedly the best, but quick wins are not sustainable for long-term investing,” says Vanguard on its cryptocurrency investing website.
Digital assets also have a high potential for fraud, theftand losses, say critics. Cryptocurrencies can be lost forever simply by losing or forgetting a password or through theft of digital wallets, the Department of Labor said in a statement. memorandum last month. Considering the risks, the department cautioned plan sponsors offering these investments to explain how they are adhering to their fiduciary responsibility to their consumers.
Fidelity recognizes that not everyone may feel comfortable investing in digital assets, but for those who do, the company will provide educational materials so they can make informed decisions.
The company also said that each client will invest through a digital asset account, which will be held on Fidelity’s custody platform to ensure institutional-grade security for the assets.
Fidelity says that its new offering reflects “constantly growing demand for digital assets across all investor segments, and we believe that this technology and digital assets will represent a large part of the future of the financial industry.”
Fidelity is likely right that digital assets will become a norm in the financial industry, but “it’s not clear what that looks like,” making it too early to invest retirement funds in them, Khawar said.
Vanguard echoed that sentiment, saying, “While we do not currently offer cryptocurrencies as an investment option, we recognize the impact they are having on the world of investing. As cryptocurrencies and blockchain become more mainstream, we will continue to monitor their development and discern the best path forward for our investors.”
Medora Lee is a money, markets and personal finance reporter for USA Today TODAY. You can reach her at [email protected] and sign up for our free Daily Money newsletter for personal finance tips and business news Monday through Friday mornings.