NEW YORK — More workers may soon be able to stake some of their 401(k) retirement savings to bitcoin, as cryptocurrencies crack even deeper into the mainstream.
Retirement giant Fidelity said Tuesday that it’s launched a way for workers to put some of their 401(k) savings and contributions directly in bitcoin, potentially up to 20%, all from the account’s main menu of investment options. Fidelity said it’s the first in the industry to allow such investments without having to go through a separate brokerage window, and it’s already signed up one employer that will add the offering to its plan later this year.
Fidelity’s offering may be one of just a few for a while, given the substantial concerns about the riskiness of cryptocurrencies. The U.S. government last month warned the retirement industry to exercise “extreme care” when doing something like this, highlighting how inexperienced investors may not appreciate just how volatile cryptocurrencies can be, among other concerns.
Bitcoin fell by 10% for five days during the year. The stocks in the S&P 500, meanwhile, had only two such drops in the last 50 years. Beyond its volatility, there’s still fundamental disagreement about how much a bitcoin is worth, or even if it’s worth anything at all.
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According to cryptocurrency advocates, cryptocurrencies could increase returns on a portfolio that is well-diversified without increasing risk. That’s because cryptocurrencies haven’t always moved in the same direction as stocks and other investments, though they often have in recent months amid worries about rising interest rates.
Some investors might believe all the benefits of bitcoin but prefer not to have to open new accounts to buy it, deal with the tax on the gains, and learn how to store it. Or they may come around to that belief soon, and Fidelity wanted to be ready for them, said Dave Gray, Fidelity Investments’ head of workplace retirement offerings and platforms.
“We have been developing this, anticipating some of the workforce trends that we see coming,” Gray said. “Our clients expect us to be ahead and developing innovative solutions.”
Some traders love the volatile nature of cryptocurrency. This is what makes it so exciting. Bitcoin’s value quadrupled over 2020. Traders can also buy and sell bitcoin 24 hours a day. An average day on Wall Street for stocks lasts six hours.
But the new Fidelity account won’t offer that. The price will be updated once per day like traditional mutual funds. Fees may be charged for the account, which could range between 0.75% and 0.90%. The account will have expenses paid every year, so $7.50 to $9 for each $1,000 that is invested. That’s less than some specialty investments but more than vanilla stock index funds, which can be virtually free.
Similar products are being offered by other companies in the sector. ForUsAll is a provider of 401(k). In June 2021, they announced a product that allows workers to send some of their 401 (k) to a self-directed account.
Jeff Schulte CEO stated that the company had spoken with the U.S. Labor Department all through 2021 regarding the possibility of marrying crypto accounts and 401(k). Even after Labor’s stern warning last month, Schulte said he still expects the product to launch this quarter. ForUsAll intends to ask savers to complete an interactive quiz regarding the potential risks associated with cryptocurrencies, before they buy them.
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“Protecting investors is paramount,” he said. “We believe our solution meets all the fiduciary standards under ERISA,” the federal law that oversees retirement plans.
Fidelity also places what Gray calls “digital speed bumps” in front of investors, forcing them to slow down and study the risks and rewards of crypto.
Although this may be possible, it might take some time for employers to begin offering such a service. The Plan Sponsor Council of America recently asked its members if the Labor Department’s warning changed their minds at all in terms of considering crypto.
The majority — 57% — said that they would never consider crypto as a viable investment option regardless. Another third said the warning “simply affirms the concern we already had.”
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