Fidelity announced on April 26 that it will become the first retirement account provider to allow workers to invest 401(k) savings directly in bitcoin, starting in the summer of 2022. Fidelity, which is responsible for roughly a third of the 401(k) market, will allow users to invest in crypto without having to set up an account on a cryptocurrency exchange.
While this is certainly a sign that cryptocurrencies are gaining more traction, experts say that Fidelity is probably going to be one of the only 401(k) servicers to allow bitcoin investments for some time to come due to the riskiness of such investments.
"We have been developing this, anticipating some of the workforce trends that we see coming," Dave Gray, Fidelity Investments' head of workplace retirement offerings and platforms, said. "Our clients expect us to be ahead and developing innovative solutions."
Fidelity announced that it will allow 401(k) account holders to invest potentially up to 20% of their savings into bitcoin. The bitcoin investment options will be available through the account's main menu, and will be the first of its kind not to utilize a separate brokerage window, according to Fidelity.
There is widespread debate regarding the potential risks and benefits of including bitcoin in investment portfolios.
Just last month, the U.S. Department of Labor (DOL) released a blog cautioning retirement funds against utilizing bitcoin. The DOL wrote that it has "serious concerns" regarding fund managers' plans "to expose participants to direct investments in cryptocurrencies or related products, such as NFTs, coins, and crypto assets."
"Cryptocurrency has gained mainstream popularity and notoriety, but there is still great uncertainty about how the market will develop, and little agreement on investing fundamentals relating to cryptocurrency," the DOL blog reads.
Among its concerns, the department included the fact that there is no agreed upon way to value cryptocurrencies, the lack of reporting requirements, rapidly evolving regulations, and the high potential for under-informed investments.
The DOL also pointed to arguably the most well-known risk of crypto-investing, its volatility. The blog argues that quickly fluctuating prices can leave investors more vulnerable to big losses. According to NPR, bitcoin saw price drops of at least 10% on five separate days in the past year, compared to just two times in the past 50 years for the S&P 500
Fidelity itself has an entire page on its site dedicated to informing its customers not only of the basics of bitcoin, but also its many significant risks. However, the company also wrote in a letter to the DOL that the department had failed to give clear guidance, and that it should work with plan overseers to create guidelines for the use of cryptocurrencies in investment plans.
"The Department of Labor is substituting its own opinion on crypto for what rightly belongs to plan sponsor fiduciaries," Gray said.
While there is certainly a significant group of bitcoin critics, there is also a group of avid supporters. Fans of bitcoin say it can help strengthen a diversified portfolio because cryptocurrencies don't always move in the same direction as the stock market. However, that isn't a hard and fast rule, and bitcoin has recently been following the same trends as the market.
Another common draw to crypto investing is the same as its potentially biggest drawback: volatility. While that volatility can turn away more cautious investors, others are drawn to the thrill of a potential big win and the 24 hour investment cycle.
On that front, Fidelity is actually lacking: the account will update its price just once per day, more like a traditional mutual fund. Using the account will also cost you a fee of between 0.75% and 0.90% of assets, or between $7.50 and $9 for every $1,000 you invest. There will also be an additional trading fee, though the rate hasn't been released.
The retirement company said it has already found one employer, the business analytics firm MicroStrategy, who has agreed to add the bitcoin option to its retirement plan in 2022. MicroStrategy was already heavily invested in bitcoin prior to its commitment to Fidelity.
