Bitcoin in a Retirement Portfolio Raises Eyebrows and Crypto’s Profile

05 May, 2022
Bitcoin in a Retirement Portfolio Raises Eyebrows and Crypto’s Profile

Fidelity Investments, a U.S. based firm that manages significant assets, shook up the fiat world with its announcement that customers could soon add Bitcoin to their retirement savings accounts.  The privately held 75-year-old firm, which carries significant weight in the retirement market, gave crypto fans something to be optimistic about in a relatively stagnant market.  But it also brought out the critics and a warning from the U.S. government.

“Fidelity Investments®, one of the largest financial services providers, recently announced the launch of Fidelity’s workplace Digital Assets Account (DAA), the industry’s first offering that will enable individuals to have a portion of their retirement savings allocated to bitcoin through the core 401(k) plan investment lineup,“ the company’s news release said. “The innovative new offering, which MicroStrategy plans to add to its 401(k) plan later this year, will be available broadly to employers’ mid-year.”

It's big news for those who believe that crypto is the future of money.

“At a time when foundations, endowments and now pension plans are investing in cryptocurrency, blocking access puts everyday Americans at a structural disadvantage, deepening an already wide retirement gap,” the company said.

Slow your horses, the feds said in response to the move by Fidelity.

“We have grave concerns with what Fidelity has done,” Ali Khawar, acting assistant secretary of the Employee Benefits Security Administration, said in an interview with The Wall Street Journal.

His comment was consistent with what he said in March, when providing guidance to organizations that manage retirement funds.

“At this stage of cryptocurrency’s development, fiduciaries must exercise extreme care before including direct investment options in cryptocurrency,” he said.  Khawar mentioned that FOMO (fear of missing out) shouldn’t drive decisions that could potentially have a negative impact on a person’s hard-earned retirement savings.

MicroStategy’s CEO Michael Saylor, who is one of Bitcoin’s biggest supporters, responded to the fed’s warning with a grain of salt.

“Bitcoin is an excellent alternative asset for retirement accounts, at a time when equities appear increasingly risky and bonds seem structurally defective due to the macroeconomic environment,” he tweeted. “We need to educate regulators on the benefits of Bitcoin.”

It should be noted that under the Fidelity Plan a person can allocate up to 20% of their savings to Bitcoin, the only cryptocurrency that is currently allowed in the plan.  An employer, which needs to approve the plan, can opt to reduce that allocation further.

Fidelity’s investment product is the second in the market to offer plan holders the opportunity to invest in Bitcoin. Last year, ForUsAll, which offers 401K retirement plans, also introduced a product that included the world’s first digital currency in its portfolio.  But Fidelity’s sheer size and footprint carries significant weight in the move to mainstream crypto.

“It's a big move given that Fidelity is the largest 401(k) plan provider in the United States, acting as custodian for 23,000 plans, which have 20.4 million participants. In total, those plans represent $2.7 trillion in assets under management,” CNN said.

Fidelity says it was responding to customer demand to integrate Bitcoin into its products.

“We started to hear a growing interest from plan sponsors, organically, as to how could Bitcoin or how could digital assets be offered in a retirement plan,” said Dave Gray, head of workplace retirement offerings and platforms at Fidelity Investments, “We fully expect that cryptocurrency is going to shape the way future generations think about investing for the near term and long term.”

Fidelity has been actively promoting bitcoin-related products and services in the past few years.

“In November, Fidelity launched Canada’s first regulated that offered bitcoin custody and trading services for institutional investors in the country,” Coin Desk explains.  It also offers publicly traded bitcoin products on the Toronto Stock Exchange and in Switzerland and Germany.  The U.S. government has yet to allow a pure Bitcoin fund to pass through its vetting gauntlet.

While the news was a cause for optimism among crypto believers, its impact on the market was negligible.  The ongoing war in Ukraine, coupled with rising inflation in the U.S., and the potential for a change in the Federal monetary policy has kept both traditional and crypto markets in a volatile state. While investors everywhere are watching their funds stagnate, the decision by Fidelity represents a new phase for crypto as digital assets move closer to mainstream adoption

Joyce Pavia Hanson

Contributor

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