Can you have crypto in a 401k?

Fidelity Investments made history this week when it announced that it would give participants in employer-sponsored 401 (k) plans options to invest in Bitcoin. Fidelity is the largest provider of retirement plans in the U.S. In the US, news was scant as to whether other major cryptocurrencies, such as Ethereum, would eventually be allowed on Fidelity 401 (k) accounts. Last month, the government warned the retirement industry to be very careful in doing something like this, highlighting how inexperienced investors may not appreciate how volatile cryptocurrencies can be, among other concerns.

He added that he would conduct a research program aimed at plans that offered crypto and related investments. This lack of fundamental value makes Bitcoin highly speculative and risky, and the price is driven solely by sentiment, because there is no inherent value in cryptocurrency. Although Fidelity is best known for its vast retirement business, it was one of the first participants in the cryptocurrency space. The announcement could bring millions of people closer to direct investment in Bitcoin this summer without having to open an account with a cryptocurrency exchange.

Fiduciaries considering adding cryptocurrency investments to 401 (k) plans should reconsider their decision in light of this guidance and proceed only after weighing the risks of DOL investigation and trust litigation and documenting the decision-making process. The U.S. Council, sponsor of the plan, recently asked its members if the Department of Labor's warning had changed their minds in terms of considering cryptocurrencies. A recent survey conducted by the Plan Sponsor Council of America found that only 2% of the 63 employers surveyed would consider making cryptocurrency available in their plans.

A growing number of traditional investment options that offer exposure to cryptocurrencies have recently hit the market, including a number of exchange-traded funds last year. That said, I expect at least one brand to oppose this trend and use its position against cryptocurrencies at 401 (k), s as a differentiator of its own. The price of Bitcoin has risen in recent years, after starting from scratch, and that may have given the impression that there is some underlying value to cryptocurrency. While there is a lack of a total ban, the March 10 guidance calls for a great deal of caution regarding cryptocurrency investments.

Last month, the Department of Labor asked plan trustees to be very careful before considering adding a cryptocurrency option to the investment menu of a 401 (k) plan for plan participants. Fidelity also puts what Gray calls digital speed bumps in front of investors, forcing them to slow down and study the risks and rewards of cryptocurrencies. A decentralized autonomous organization, or DAO, is an organizational structure built on blockchain technology that is often described as a crypto cooperative.

Eugene Galuska
Eugene Galuska

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