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fidelity, the nation’s largest provider of 401(k) retirement plans, has opened the door to a future of cryptocurrency savings: The company announced it will soon allow a portion of participants’ contributions to be held in bitcoin .
Employees working for one of the 23,000 companies that use fidelity 401(k) services will be able to allocate up to 20% of their portfolio to the world’s largest cryptocurrency, the company announced last week. but that’s only if your employer allows it. And given the widespread backlash against the plan, including from the US. uu. department of labor, it seems unlikely that many employers will take advantage of the opportunity for now.
“From what I hear, most employers wait and see,” says david john, senior policy advisor at aarp’s public policy institute.
A recent survey by the Plan Sponsor Council of America found that only 2% of 63 employers surveyed would consider including cryptocurrency in their plans. John says that based on his recent conversations and research, the disapproval of the labor department has had a big impact in deterring employers from taking the risk.
In addition, employers have a statutory fiduciary duty to offer prudent investments to retirees under the Employee Retirement Income Security Act of 1974, which leads to more cautious decision-making. “You’ve seen a lot of lawsuits against employers, accusing them that their investment mix is wrong or that the fees are too high,” John says. “So I’ve heard employers say, ‘maybe we’ll just wait and see how this all plays out.'”
Fidelity’s announcement came a month after the Department of Labor fired a warning shot at retirement plan distributors. In a statement, the department’s Employee Benefits Security Administration (EBSA) argued that cryptocurrencies “present significant risks and challenges” to future retirees, and that employers attempting to offer such plans “should expect to be challenged.” bitcoin’s volatility compared to traditional markets has stood out in recent months, down 40% from its november high, while the s&p 500 is down 10% over the same period.
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fidelity, however, argued that it is simply giving investors what they want. A 2021 study by the company found that 30% of us. uu. institutional investors surveyed “would prefer to buy an investment product containing digital assets.” dave gray, fidelity’s head of workplace retirement offerings and platforms, told the wall street journal that fidelity is seeing “organic and growing customer interest” in cryptocurrencies, especially those with younger employees.
The decision will take effect “in the middle of the year”, according to fidelity. employees will only be able to integrate bitcoin into their wallet unlike other cryptocurrencies. However, Gray said that other altcoins may become available in the future.
The first employer to accept the offer was microstrategy, a data analytics company run by crypto enthusiast michael saylor. (Microstrategy is the second largest bitcoin holder of any publicly traded company.) On Twitter, Saylor argued that bitcoin is a solid alternative investment when “stocks look increasingly risky and bonds look structurally flawed.”
The Department of Labor and other experts disagreed. Last week, EBSA’s acting deputy secretary Ali Khawar doubled down on the department’s original stance on him, telling the Wall Street Journal that they have “serious concerns” about the fidelity decision. (He did say, however, that they would not ban cryptocurrencies in retirement accounts.)
vanguard, one of fidelity’s main competitors, issued a statement in November arguing that “since cryptocurrencies are highly speculative in their current state, vanguard believes their long-term investment case is weak.”
“I think it’s a horrible mistake at this point,” John says of the idea of bitcoin in retirement plans. “bitcoin is exciting, interesting and innovative. but for retirement, you need to have a reliable source of savings and income rather than what you could ‘gamble-invest’ in. we only have a few years of data, and there is a strong possibility of a very sudden and precipitous change. fall at the wrong time possible.”
john also pointed out that fidelity’s decision to allow investors to hold up to 20% of their portfolios in bitcoin is much higher than the limit for comparably volatile investments. “When you look at most alternative investments, like real estate mutual funds or private equity, the typical proportion of risky investments is two to three percentage points,” he says.
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