In April, United States-based retirement plan provider Fidelity Investments moved to allow 401(k) retirement savings account holders to invest directl
In April, United States-based retirement plan provider Fidelity Investments moved to allow 401(k) retirement savings account holders to invest directly in Bitcoin (BTC), the flagship cryptocurrency, making crypto a potential part of one’s savings for the future.
A 401(k) is a retirement savings plan offered by many U.S. employers that give the saver tax advantages and allow for several different investment options. Fidelity’s move will make it easier for Bitcoin to be among those options.
In a typical 401(k) plan, employees agree to have a percentage of each paycheck paid directly into an investment account created for the plan, while employers often match part or all of the employees’ contributions.
Fidelity is the largest retirement plan provider in the United States, and its BTC rollout will make the cryptocurrency available to more than 40 million employees — assuming their employers decide to offer it. Investors who take advantage of the initiative could effectively become tax-advantaged long-term BTC hodlers removing coins from circulation every month.
The company’s plan limits BTC allocations to a maximum of 20% and allows companies to make the threshold even lower. Offering cryptocurrency options for 401(k)s isn’t new, however. In June 2021, another retirement plan provider, ForUsAll, partnered with Coinbase to offer BTC exposure to its account holders.
ForUsAll even recently filed a lawsuit against the Department of Labor and Secretary of Labor Marty Walsh in the United States District Court for the District of Columbia, seeking the withdrawal of a compliance assistance release.
The release states that the department’s Employee Benefits Security Administration will “conduct an investigative program aimed at” 401(k) plans that include cryptocurrency. Speaking to Cointelegraph at the time, ForUsAll CEO Jeff Schulte said the government was “trying to restrict the type of investments Americans can choose to make because they’ve decided today that they don’t like a certain asset class.”
Questions of government overreach aside, it’s also important to consider whether including crypto assets in a retirement plan is a good idea. The Bitcoin network has been around for over a decade and has outperformed every other asset class so far, but as any analyst will say, past performance does not guarantee future results.
Crypto volatility and 401(k) plans
Considering that Bitcoin and crypto assets in general are recent financial experiments only a little over a decade old, some investors may find digital currencies too risky. Cryptocurrencies can be highly volatile, and their value has been known to plunge by up to 80% during bear markets — something that could prove disastrous ahead of someone’s retirement.
While employees aren’t forced to withdraw from their 401(k) plans when they retire, the point of the money being there is to provide them comfort during their sunset years. Waiting for the market to recover or simply accepting such significant losses could be devastating.
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Chris Kline, co-founder and chief operating officer of Bitcoin IRA — a cryptocurrency-focused individual retirement account provider — told Cointelegraph that there is a “growing conversation around the adoption of digital assets and their growing use case.”
Kline pointed to Senator Tommy Tuberville from Alabama, who recently unveiled a bill, the Financial Freedom Act, that seeks to allow Americans to add cryptocurrency to their 401(k) retirement savings plans.
According to Kline, part of the “retirement crisis we have in this country [the U.S.] is due to a lack of participation in 401(k)s.” He added that such moves could be a way to get newer generations engaged through their employer-sponsored plans and help Americans retire while testifying to the resilience and relevancy of crypto assets. Kline added:
“Crypto is certainly volatile, but its resiliency and relevancy in its short existence are remarkable. Having at least some exposure — and more importantly, experience in crypto — is becoming paramount to modern investing.”
Cryptocurrencies could have the same disruptive impact on money that the internet had on communications or that email had on post offices, Kline stated.
Speaking to Cointelegraph, Scott Melker, a cryptocurrency influencer and the host of the Wolf Of All Streets Podcast, noted that every investor should have “at least minimal exposure” to Bitcoin, with Ether (ETH) a second possibility worth considering.
According to Melker, even a small allocation in these assets potentially offers “idiosyncratic risk and the opportunity to invest in an asset [that] can go up when everything else is dropping.” Melker added that crypto markets crashing ahead of retirement might not be the biggest concern, saying:
“Any market can crash ahead of retirement, so this is not a concern specific to Bitcoin. Investors in…
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