tl;dr Summary: Fidelity, the largest provider of workplace retirement accounts in the USA, have announced plans to enable customers to hold Bitcoin as part of their 401(k). The United States Department of Labour had recently warned against this move, and have been quick to voice concerns.
Despite Bitcoin’s continued price slump since the turn of the year, mainstream adoption of the world’s biggest cryptocurrency shows no signs of slowing. Fidelity Investments are the latest institution to get in on the act, with the landmark announcement that they are to become the first major financial services provider to offer bitcoin investments as part of their 401(k) retirement plans. The move comes just a month after the US Department of Labor warned fiduciaries against the inclusion of digital assets within such plans.
401(k) plans are now the most common form of retirement savings plan in the US. There were over $7.3 trillion worth of assets held in 401(k) accounts in September 2021, and thus any shift of this resource allocation towards bitcoin would be considered highly bullish news for the digital assets space. Fidelity is the largest provider of workplace retirement accounts in the USA, managing over $11 trillion in assets on behalf of over 20 million Americans. In a press release on Tuesday, the company launched the ‘Digital Assets Account’ (DAA), which customers will be able to include within their 401(k) allocation. The DAA will predominantly hold bitcoin that is custodied by Fidelity, as well as ‘short-term money market investments.’ The account will be supported by educational resources to help investors make informed decisions about their investments.
Fidelity stated that the move will “enable employees who are comfortable with the risks and volatility of cryptocurrency” to add bitcoin to their retirement plan. The DAA should become available in plans later this year, at which point customers will be able to allocate up to 20% of their plan to Bitcoin, providing their employer signs off on the use of digital assets. The first company to announce that they will offer the account to employees was MicroStrategy, who famously hold more bitcoin than any other public company. CEO Michael Saylor stated, “teaming with companies like Fidelity that are innovating in bitcoin for corporations is important to us, as is furthering the development of the bitcoin ecosystem for institutional investors.”
The announcement has drawn a mixed reaction from commentators. Many have referenced Bitcoin’s track record of volatility to criticize the move, stating that the DAA exposes regular consumers to undue amounts of risk with regard to their future financial security. In March, the US Department of Labor advised financial institutions to exercise “extreme care” when considering cryptocurrencies as part of retirement accounts, citing the Employee Retirement Income Security Act (ERISA) of 1974. ERISA is designed to safeguard US citizens from the risk of significant losses from retirement investments. The warning stated that cryptocurrency investments “present significant risks and challenges to participants’ retirement accounts, including significant risks of fraud, theft, and loss.” It is perhaps unsurprising that Labor Department officials have been quick to come out to say they have “grave concerns with what Fidelity have done” and will be meeting with Fidelity to discuss the plans going forward.
Fidelity will argue that it is simply giving the people what they want. According to the company’s 2021 digital assets survey, 30% of institutional investors stated that they wanted an investment product containing digital assets such as bitcoin. The move has been widely celebrated in the crypto community as further proof of the legitimacy of digital assets as long term investment vehicles. Although it has been speculated that many other major retirement plan providers are looking to follow Fidelity’s footsteps, as yet all major competitors have denied aspirations to do so, perhaps keen to see if Fidelity is able to avoid regulatory scrutiny before announcing their own digital asset offerings..
