Your 401(k) and the bitcoin boogie

Opinion editor’s note: editorials they represent the views of the Star Tribune Editorial Board, which operates independently of the newsroom.


Bitcoin had a very bad day a few weeks ago, its price plummeting along with other cryptocurrencies, adding a bit of misery for those who put money into the asset class without immediately snapping it up. The cryptocurrency market is notoriously volatile, and the problem this time around was the collapse of part of it known as stablecoins. Go figure.

We refer to the recent misery as an additional “scoop” because things have, well, leveled off for cryptocurrencies, which are traded around the clock. Even so, the most prominent cryptocurrencies, of which Bitcoin is the most important, have halved since November.

So it would be terrible to let people gamble with your retirement accounts, right?

The US Department of Labor thinks so, issuing Guide in March with concerns about the “reliability and accuracy of cryptocurrency valuations” and reminding trustees of their “obligation to ensure prudent options on an ongoing basis.” The department is not necessarily driving a “never crypto” bandwagon, but it is looking at the reins.

More specifically, the famous investor Warren Buffett once called cryptocurrency “rat poison squared”. Furthermore, his famous countryman Charlie Munger recently saying bitcoin is “like a venereal disease or something.”

And yet.

In April, Fidelity, the largest among retirement accounts, announced a plan that would put bitcoin on the menu of investment options for 401(k)s. But only bitcoin for now, not the multitude of other cryptocurrencies, and only at levels of no more than 20% of an account, and only for those investors whose employers agree.

This is not necessarily a bad thing, despite any supposed resemblance of cryptocurrencies to rodenticides or worse. Even Buffett and Munger’s firm, Berkshire Hathaway, has invested at a bank that focuses on cryptocurrencies.

Consider this: If you’re a broad market buy-and-hold investor, which is basically what’s recommended for most people for most of their working years, it’s also down in recent months: about 20% , how does it happen. History suggests that your account will recover, but history does not guarantee how quickly.

Put aside promises of astronomical long-term profits that supporters say are inevitable due to the way some cryptocurrencies, including Bitcoin, are designed. While cryptocurrencies today can only be described as speculative, there may come a day when it is a reliable alternative to central bank influenced asset classes. As a non-physical form of money created with encrypted data (hence the name), whose movement is managed by decentralized computer networks, not governments, it could offer investors a way to diversify and potentially stabilize their accounts.

The Star Tribune editorial board wrote last year on signs that cryptocurrencies were starting to gain ground. Fidelity’s plans confirm this. We also wrote that there is room to let the crypto market shake before deciding how best to regulate it. But that permissiveness cannot last forever.

Indeed, there are reasonable questions about Fidelity’s plans, and US Senator Tina Smith of Minnesota is among those raising them. Along with Sen. Elizabeth Warren, D-Mass., Smith wrote a letter to Fidelity asking why the company ignored the Labor Department’s guidance; how you plan to deal with various crypto risks, including theft, fraud, and reliability of record keeping, in addition to volatility; what fees you can charge and if you have a conflict of interest as a bitcoin miner. A response is pending.

“My job is not to tell people what to invest in,” Smith told an editorialist. “My job is to make sure they have accurate and fair information.”

That sounds good to us.

In any case, having a bitcoin option on retirement accounts does not mean that investors have to choose it. They certainly shouldn’t if they don’t understand it, and even those who think they understand the concept should limit their risk to less than the value of their account that Fidelity would allow. One recommendation we recently read was 1%.

In other words, handle it carefully, as with any potential poison.