Fidelity to allow pension accounts to invest in Bitcoin

Cryptocurrency advocates and those curious about it have suddenly discovered that asset management giant Fidelity will begin allowing investors to deposit Bitcoin into their 401(k) retirement savings accounts. From a tax perspective, this seems to be an easy way for individuals to gain access to this emerging asset class in a favorable manner. However, there are still some important factors to consider.

The service will be available to participants in Fidelity’s employee-sponsored retirement plans later this year, but only if their employer chooses to offer it. Annual 401(k) earnings are tax-deferred, eliminating the hassles associated with cryptocurrency investments and annual tax reporting.

According to the Wall Street Journal, the fees for investing in Bitcoin in a Fidelity retirement account will be between 0.75% and 0.90%, plus trading fees that are in the middle of the spot market trading fees offered by most major U.S. exchanges, including Coinbase, Gemini, Kraken, FTX, and Binance U.S. In addition, employees can only invest up to 20% of their current account balance in Bitcoin.

The only company that has signed up for the service is business analytics firm MicroStrategy, led by bitcoin bullish billionaire Michael Saylor. It is the world's largest bitcoin holder, with more than $5 billion in stock. Again, employers must agree to provide the service, but some may balk at the volatility of the asset.

In 2013, one could buy a Bitcoin for less than $300, and today, that price is $40,000. While this is a huge growth, it hasn’t been without its share of setbacks. Bitcoin and other leading crypto assets have lost more than 50% of their value multiple times, many of which occurred before the industry entered the mainstream consciousness. Many investors may remember that Bitcoin was close to $20,000 at the end of 2017, and then lost 75% of its value in the following months. Bitcoin holders will say that the crypto asset has recovered more after each knockdown. Many also believe that navigating these boom-and-bust cycles is a necessary part of life, but it may not be for everyone.

While some may be excited about Fidelity letting its customers try Bitcoin investing, the government may not be so happy. First, U.S. federal regulators have been very cautious about giving investors easy access to the crypto spot market, or even Bitcoin. As we all know, the U.S. Securities and Exchange Commission (SEC) has not approved a Bitcoin spot ETF, although it has approved some products that provide exposure to Bitcoin futures contracts, often citing the market’s susceptibility to fraud and manipulation.

When it comes to retirement planning, asset volatility is something you have to consider. Bitcoin has fallen nearly 40% from its all-time high of just under $70,000 last November, and retirees and those approaching retirement may not have the funds or time to ride out these volatile cycles. Last month, the U.S. Department of Labor issued a notice expressing several concerns about investing retirement funds in cryptocurrencies. Chief among them are the extreme volatility of the market, the emerging but unclear regulatory status associated with crypto assets, the inability of investors to make informed decisions, and the safety of holding crypto assets, which have become a target for hackers. The department's concerns are important because it has a say in the regulation of employer-sponsored plans.

In addition, it is reported that Coinbase, the largest crypto trading platform in the United States, has cooperated with a retirement enterprise in July last year to provide similar services. David John, senior policy advisor and deputy director of the retirement security project at the Brookings Institution, a US think tank, told Forbes, "The crypto field itself is fascinating, and it was interesting when it first started to develop, but it is still in its early stages and is definitely not suitable for retirement investment. The fact is that for retirement investment, the purpose should be growth, and volatility should be limited. The older you are, the less you want your investment portfolio to fluctuate up and down, because it makes it difficult for you to plan your retirement income."

Although Fidelity is unique in asset management and retirement savings, there are other ways for people to get their retirement savings into the crypto space. Companies such as Kingdom Trust, iTrust Capital, and BitcoinIRA allow investors to buy digital assets through exchanges and hold them in the form of individual retirement accounts. In addition, in June of this year, Coinbase partnered with ForUsAll to allow participants in employer-sponsored plans to purchase dozens of different crypto assets and hold them in tax-deferred plans.