The United States government is growing increasingly concerned about Bitcoin (BTC) in retirement savings, with two senators flagging some issues in Fidelity Investments’ plans to include Bitcoin (BTC) in 401(k) accounts.
Senators Elizabeth Warren of Massachusetts and Tina Smith of Minnesota expressed concerns over Fidelity’s decision to add BTC to its 401(k) investment plan in a letter to Fidelity CEO Abigail Johnson.
Dated May 4, the letter suggests that Fidelity’s latest Bitcoin plan has a potential conflict of interest, noting that Fidelity has been deeply involved in crypto since it began experimenting with BTC and Ether (ETH) mining operations and integrating Coinbase accounts back in 2017.
On April 26, Fidelity announced plans to allow retirement savers to allocate up to 20% of their portfolio in BTC, citing high client demand. Senators Warren and Smith, however, argued that there was not enough client demand for this opportunity, stating:
“Despite a lack of demand for this option — only 2% of employers expressed interest in adding cryptocurrency to their 401(k) menu — Fidelity has decided to move full speed ahead with supporting Bitcoin investments.”
The letter also mentioned “significant risks of fraud, theft and loss” associated with crypto assets. The senators referred to a statement by the Department of Labor (DOL), which warned in March that any significant crypto investments within company-sponsored retirement accounts may attract legal attention. The authority also pointed out risks related to cryptocurrencies’ “extreme volatility and high speculation,” custodial and recordkeeping concerns, and others.
“In short, investing in cryptocurrencies is a risky and speculative gamble, and we are concerned that Fidelity would take these risks with millions of Americans’ retirement savings,” the senators wrote in the letter.
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To better understand Fidelity’s decision to adopt BTC for 401(k)s, the senators requested the firm to provide answers on how they are planning to address risks laid out by the DOL by May 18, 2022. They also asked for more information about Bitcoin investment fees and the amount of money generated from Fidelity’s crypto mining operations.
Senator Elizabeth Warren is calling on Fidelity Investments to address the risks associated with allocating retirement savings in 401(k)s to cryptocurrencies such as Bitcoin.
The Massachusetts senator sent letters last week to Fidelity and three other firms that provide record-keeping services for 401(k) plans. She wants them to investigate ways to ensure the safety of employees‘ retirement savings if they choose to invest in Bitcoin and other digital assets.
In her letter to Fidelity, Warren said that the firm, as one of the largest administrators of 401(k) assets, has a responsibility to understand the risks involved in investing in Bitcoin. She wants the firm to consider potential technological, financial, and cybersecurity risks and develop safeguards against potential losses.
Warren went on to say that the possibility of digital assets being used to scam people is a real concern and the companies should seek to protect consumers. She cited examples such as online exchanges being hacked or shutting down without warning and leaving customers without access to their digital assets for extended periods of time, even years.
In her letter to the other three firms, Warren asked them to examine the potential legal and regulatory risks associated with allowing customers to invest in Bitcoin as part of their 401(k) plans. She also asked them to look into whether the investment activities of their customers would be subject to different taxes and regulations than those of other customers who are not investing in digital assets.
Warren’s letters follow a call last week by the U.S. Securities and Exchange Commission (SEC) for better global coordination on cryptocurrency enforcement measures.
The letters sent by Warren to Fidelity and the other firms are part of her ongoing effort to ensure that the country’s financial markets remain fair and transparent, with adequate standards and suitable regulations in place. Her efforts to ensure the safety and security of retirement savings accounts are admirable, and it will be interesting to see how the firms respond to her inquiries.
