In a bold move to address employer demand to offer access to cryptocurrencies in retirement plans, financial services giant Fidelity Investments announced Tuesday that it has introduced a new offering that will give people the ability to allocate part of their retirement savings to Bitcoin through their 401(k) plans.
Fidelity's workplace Digital Assets Account, or DAA, is the "first-of-its-kind" offering geared toward companies that want to give their employees the ability to access digital assets, specifically Bitcoin, through an investment option in their 401(k) core investment plans.
The Boston-based investment advisory firm said that analytics software and business intelligence company – and Bitcoin proponent – MicroStrategy, will be the first to add the DAA offering to its 401(k) plan "later this year." DAA will be available broadly to employers by mid-year, Fidelity added.
How it works
According to Fidelity, its DAA account holds both Bitcoin and short-term money market investments for the purpose of providing the liquidity necessary for the account to facilitate daily transactions on behalf of the investor. For security purposes, Bitcoin in the DAA will be held on the Fidelity Digital Assets custody platform. Plan sponsors that will offer the DAA will establish employee contribution and exchange limits into the account. "Employees will benefit from a fully integrated retirement plan, digital experience, and education to help them make informed decisions," Fidelity said.
Fidelity didn't provide further specifics about the DAA but said that additional updates will be available in the coming months as it builds its digital asset platform, where it will leverage blockchain technologies and expand use cases beyond bitcoin.
A growing interest in crypto
Fidelity's decision to offer access to Bitcoin through its newly formed DAA is a significant step in making digital assets such as Bitcoin more accessible to investors and, therefore, a more viable investment option in the traditional investing space. Back in December, crypto exchange provider Nexo teamed up Fidelity Digital Assets to provide institutional investors access to digital assets through custodial and lending services, and bringing in traditional finance companies into the digital assets space.
But amidst the hoopla to make crypto a mainstream investment, it's still a highly speculative and volatile one. In March, the Department of Labor cautioned that 401(k) plan fiduciaries should exercise extreme care before they consider adding a cryptocurrency option to a 401(k) plan's investment menu. In addition to its speculative and volatile nature, the DOL said that the lure of a cryptocurrency's potential to offer outsized profits can cloud an investor's ability to make informed, prudent investment decisions, especially when it involves their retirement investments. Custodial and recordkeeping concerns, valuation concerns, and an evolving regulatory environment were three other areas of concern from the DOL.
Nevertheless, Fidelity sees the need to launch its DAA plan now, citing a study it conducted last year that revealed that 30% of US institutional investors surveyed would prefer to buy an investment product containing digital assets. What's more, Fidelity says that about 80 million US individual investors currently own or have invested in digital currencies. "There is growing interest from plan sponsors for vehicles that enable them to provide their employees access to digital assets in defined contribution plans, and in turn from individuals with an appetite to incorporate cryptocurrencies into their long-term investment strategies," said Dave Gray, head of workplace retirement offerings and platforms at Fidelity.