Opinion: Fidelity’s bitcoin move getting all the wrong publicity


What would Ned Johnson do?

The late Fidelity Investments chief executive built his family’s Boston-based money management firm into one of the world’s largest over a long career.

Johnson died on March 23 of this year, at the age of 91.

On April 26, just over a month later, his daughter and heiress, Fidelity CEO Abby Johnson, revealed controversial plans to list bitcoin on the 401(k) platform it runs on behalf of thousands of US businesses.

Coincidence? Probably. The bitcoin move had surely been in the works for months. And Fidelity had dipped its toe in the bitcoin pool long before.

But it does raise the intriguing question of what Ned would have thought of this latest move. The old Yankee and Brahmin from Boston had a reputation as a conservative manager of client assets. He was also jealous of Fidelity’s corporate reputation. And the bitcoin movement is generating hype for all the wrong reasons. That includes getting into public trouble with senators and the Department of Labor. And associate the company with a declining asset that has shrunk by a third since the announcement.

Senator Dick Durbin of Illinois has now joined his colleagues Tina Smith (Minnesota) and Elizabeth Warren of Fidelity’s home state of Massachusetts in publicly berating the bitcoin fund giant.

Criticizing cryptocurrency as a “volatile, illiquid and speculative asset” and a “casino,” three senators want to know why Fidelity, “a trusted name in the retirement industry” and “one of the leading names in the world of finance”. I would support you in 401(k) plans.

In reality, the letter from the three senators not only criticizes Fidelity, but almost everyone involved in the rise of these cryptocurrencies in recent years. That includes “social media investment experts, well-paid actors and celebrities, and even some Washington lawmakers” who made crypto seem respectable to the public and helped propel Bitcoin to around $60,000, they said.

“Some even went so far as to call bitcoin an ‘inflation hedge’ that would prove a useful investment tool in times of high inflation,” they added.

Yes actually.

Senator Smith sent this statement to MarketWatch on Friday:

“I start with the core value that retirement security is extremely important. We only need to look at the Great Recession to see how volatile and risky retirement investments really hurt a lot of people. I think crypto is often misunderstood and has proven to be quite unpredictable, and could leave people who invest a significant portion of their retirement out of business. I think we need to think carefully about whether financial institutions should allow people to deposit their retirements in cryptocurrencies in the absence of strong regulatory safeguards.”

Fidel replied:

“Fidelity continues to have a strong interest in digital assets and blockchain. We are proud of the Digital Asset Account as a responsible solution to meet the demands of the general interest. In fact, customer interest has not only been strong, but also spans a wide range of industries and company sizes. We are on track to launch our first customer sponsor plan this fall.

We continue our respectful dialogue with legislators to responsibly provide access with all appropriate consumer protections and educational guidance for plan sponsors as they consider offering this innovative service. Consistent with our ongoing dialogue with regulators and policymakers, we are working with them directly.”

Fidelity says it is responding to customer interest. The company provides the platform and back office for the company’s 401(k) and retirement plans. It currently serves 23,000 companies and nearly 40 million plan participants.

The company says that bitcoin is the only cryptocurrency it plans to offer in its suite of offerings, and participants will not be able to commit more than 20% of their funds to the digital currency. Plan sponsors don’t have to include the bitcoin offering in their 401(k)s and can impose lower limits even if they do, Fidelity adds.

You can see this in two ways.

Personally, I am not a fan of bitcoin. I’ve been asking for years for someone, anyone, to explain to me why we need it and what I can do with it that I can’t do with anything else. I haven’t had an answer yet. If it were the only digital currency in the world it would have monopoly value. But coinmarketcap.com It lists nearly 10,000 competing digital currencies with new ones being released all the time. Just because the technology behind it is smart doesn’t make the coin valuable. Sorry, I saw this movie before, in 1999-2000.

Nope even help me get started with NFTs.

Litigant Mark Bokyo tformer retirement industry conference this week that including bitcoin in 401(k) plans will be big news… for lawyers, when participants end up suing.

On the other hand, there’s nothing stopping people from staking their 401(k) plans on all sorts of “volatile, illiquid, and speculative” assets, including many stocks on the stock market. Many plan sponsors allow you to have individual shares in your plan, as well as diversified funds.

And there’s also nothing stopping people from speculating on these digital currencies with their hard-earned money outside of their retirement accounts. As long as regulators allowed this speculative bubble to burst and then collapse, people would find ways to lose money. Whether we want to encourage them to spend their 401(k) on that is another question.