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Fidelity will soon have a bitcoin option on its 401(k) plans

The investment giant wades into the volatile cryptocurrency landscape even as regulators have cautioned employers about tethering digital assets to retirement savings

Fidelity Investments, the nation's largest provider of 401(k) retirement plans, will make bitcoin an investment option later this year. Though it's up to individual companies to sign off on the change for their employees. (Brian Snyder/Reuters)
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Fidelity Investments will soon have a bitcoin option on its 401(k) plans, making the nation’s largest provider of such workplace retirement accounts the first to wade into the highly volatile crypto landscape.

The shift announced Tuesday pushes cryptocurrency even further into the mainstream but it comes as federal regulators have expressed concerns about employers tethering digital assets to retirement savings. Though bitcoin, Ethereum and other blockchain-based currencies have become wildly popular — more than $15 trillion was traded in 2021, up more than 560 percent from 2020 — they’re prone to breathtaking swings in value.

Bitcoin, the most popular cryptocurrency, has shed 40 percent of its value since brushing $69,000 in November. On Tuesday, a single coin was worth roughly $38,245, but it’s gone as low as $29,000 in the past year.

Dave Gray, Fidelity’s head of workplace retirement offerings and platforms, told The Post that there is “growing interest” in vehicles for investing in digital assets, and in avenues for incorporating cryptocurrencies into long-term investment strategies.

Fidelity, which manages more than $11 trillion in assets, said in a news release that the shift will “enable employees who are comfortable with the risks and volatility of cryptocurrency” to allocate as much as 20 percent of their investments to bitcoin within the core lineup of their 401(k) plan. It will be available to employers midyear.

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“This is a seismic move by Fidelity that speaks to more consumers wanting to potentially own Bitcoin,” Dan Ives, managing director at investment firm Wedbush Securities, told The Post Tuesday in an email. “That said, this remains a volatile investment and more regulation is likely on the horizon as more consumers dive into the Bitcoin pool.”

Defined contribution plans such as 401(k)s have largely replaced pensions as nest eggs for American workers. Contributions to retirement savings are automatically deducted from employee paychecks, and employers get tax breaks for matching worker contributions. In 2021, more than $7.3 trillion in assets were stored in 401(k) plans on behalf of about 60 million active participants and millions more retirees and former employees, according to the Investment Company Institute.

Vanguard, the nation’s second-largest 401(k) provider, told The Post in an email that it has “no plans” to offer bitcoin or other cryptocurrencies within its plans.

In a primer for investors, Vanguard noted that the sudden price movements characteristic of cryptocurrency can “encourage impulsive buying and selling,” making it “impractical as a medium of exchange.”

Vanguard’s view echoes that of the Labor Department, which in March expressed “serious concerns” about financial services providers exposing 401(k) investors to cryptocurrency investments, highlighting the risk of fraud, theft and loss. Cryptocurrency-based crime hit $14 billion in 2021, an all-time high, according to research firm Chainalysis.

“Extreme volatility can have a devastating impact on participants, especially those approaching retirement and those with substantial allocations to cryptocurrency,” the Labor Department said.

Often promoted as “innovative investments that offer investors unique potential for outsized profits,” cryptocurrencies can “all too easily attract investments from inexpert plan participants with great expectations of high returns” and limited understanding of the risks such investments pose to their retirement savings, the agency warned.

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Market machinations have been unpredictable of late, dampening 401(k) values as investors confront a maelstrom of economic head winds, from rising interest rates and soaring inflation, to the fallout of Russian sanctions following the country’s invasion of Ukraine. The S&P 500 index is down 12.4 percent year-to-date according to MarketWatch, while the tech-heavy Nasdaq is down 20.2 percent.

Swings have been even more pronounced for cryptocurrencies, which are “very different” from typical retirement plan investments,” the Labor Department cautioned in March.

“It can be extraordinarily difficult, even for expert investors, to evaluate these assets and separate the facts from the hype.”

The agency said it would conduct an “investigative program” to ensure plans that offer investments in cryptocurrencies and related products are “taking appropriate action” to protect the interests of savers. Employers who pursue the option should expect to be questioned “about how they can square their actions” with their duty to act only in the best interest of participating workers, the Labor Department said.

Fidelity took issue with the Labor Department’s guidance, Gray told The Post, because it failed to offer “meaningful or substantive help for plan sponsors.” In a letter to agency officials, Fidelity and other industry trade groups asked them to rescind their guidance, arguing it overstepped its bounds by concluding that plan sponsors couldn’t act in the best interest of their employees while including digital assets in retirement plans.

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Although the Labor Department officials raised many risks, “there are great answers for plan sponsors as to where that risk can be mitigated,” Gray told The Post. “We’ve designed our solution in a way that we believe addresses those risks.”

One example is the deployment of “digital speed bumps,” Gray said, which will pop up to offer participants information to help guide their decisions, such as helping them to understand risks in volatility and providing links to educational content about bitcoin, blockchain and other aspects of digital assets.

Fidelity plans to build out its digital asset platform in the coming months, “leveraging blockchain technology and expanding use cases beyond bitcoin.” Fidelity has been exploring cryptocurrency since 2014, soon after mining bitcoin and later offering a digital asset trading platform. In 2020, it launched a private bitcoin fund.

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