Crypto may be coming to your retirement plan, and the regulators are not happy.
The largest 401(k) provider, Fidelity, announced on April 26 that it will offer employers to option to allow 401(k) participants to invest up to 20% of their retirement savings account in bitcoin.
Fidelity was the first major financial firm to embrace crypto, launching Fidelity Digital Assets, a trading and custody platform for institutional investors, as early as 2018. Last year, it also launched a pair of bitcoin exchange traded funds (ETFs) in Canada.
Calling the plan part of its commitment to “steadily growing demand for digital assets across investor segments,” Fidelity Investments said members of approved plans would be able to invest funds into a workplace digital assets account (DAA) that would hold both bitcoin and money market funds to allow for daily trading activity.
“There is growing interest from plan sponsors for vehicles that enable them to provide their employees access to digital assets in defined contribution plans,” said Dave Gray, head of workplace retirement offerings and platforms at Fidelity Investments, “and in turn from individuals with an appetite to incorporate cryptocurrencies into their long-term investment strategies.”
Read more: The U.S. Crypto Consumer: Cryptocurrency Use In Online and In-Store Purchases
That was reflected in PYMNTS’ U.S. Crypto Consumer survey released earlier this month. It showed that 23% of U.S. consumers — nearly 60 million — own or had owned cryptocurrency within the past 12 months
See also: The Data Point: 23% of US Consumers Owned Cryptocurrency in 2021
That’s up from 16% a year ago, meaning some 18 million Americans had bought crypto either as an investment, to use a blockchain platform — such as buying a non-fungible token (NFT) or investing in decentralized finance (DeFi) — or in order to spend it as a currency.
In that survey, 55% of the respondents — just under 33 million — said they bought it specifically as an investment, suggesting that there’s a big market for Fidelity’s DAA offering.
For one thing, it would be much easier than buying crypto privately, which requires setting up an exchange account, with anti-money laundering (AML) identity verification required, on-ramping cash, buying the crypto and then deciding whether to store it on an exchange’s digital wallet or a privately held one.
Related: 55% of Crypto Owners Purchased It as an Investment to Make Money
Just Say No
Fidelity’s offering also reflects the firm’s belief that its workplace DAA will not be smacked down by the Labor Department, which oversees 401(k)s.
The announcement comes just six weeks after the department not only made plain that it was against the idea of allowing crypto investments in 401(k)s, but also said very nearly outright that employers could be on the hook personally for losses if they allow employees to add cryptocurrencies to their 401(k) retirement accounts.
Advising plan fiduciaries to “exercise extreme care” before allowing crypto into their plans, the Labor Department noted in a March 10 compliance assistance advisory that “fiduciaries must act solely in the financial interests of plan participants and adhere to an exacting standard of professional care. Courts have commonly referred to these prudence and loyalty obligations as the ‘highest known to the law.’”
Pointing out that a fiduciary’s duties include considering if a crypto investment option meet those “exacting responsibilities,” the department said, “Fiduciaries who breach those duties are personally liable for any losses to the plan resulting from that breach.”
It added: “The failure to remove imprudent investment options is a breach of duty.”
In January, Fidelity was denied permission to open a U.S. bitcoin ETF by the Securities and Exchange Commission — joining many other companies that have been rejected by the regulator, which cited concerns that the markets for bitcoin specifically and crypto generally are too open to manipulation.
Read more: As New Crypto ETFs Continue to Spread Across Europe, the SEC Stands Fast in Opposition
The Labor Department’s advisory cited crypto’s price volatility and speculative nature, as well as the high amount of wash trading and “widely published incidents of theft and fraud.”
See also: PYMNTS Crime Series: Another Day, Another Nine-Figure Crypto Hack
The difficulty of assessing highly technical and hype-ridden promotions, appropriately valuing digital assets and the “evolving regulatory environment” were also mentioned, as was the custody of cryptocurrencies, although Fidelity’s experience in custodying institutional investors’ tokens makes that one easier to answer.
Taken together with SEC Chairman Gary Gensler’s frequent referral to crypto as the “Wild West” of finance, the Labor Department seems to be not only warning employers off but providing ammunition for lawsuits.
We’re always on the lookout for opportunities to partner with innovators and disruptors.
Learn More