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Published: Apr 26, 2022 5 min read

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Fidelity Investments branch

Investors will soon have a new way to add cryptocurrency to their retirement plans.

Fidelity Investments is planning to let investors add bitcoin to their 401(k)s, according to a news release from the company. Later this year, companies that use the provider for their retirement plans will be given the option to offer their employees access to bitcoin, allowing retirement savers to bet on the digital currency via one of the country's largest retirement-plan providers.

Cryptocurrency is quickly moving into the mainstream. Around 16% of adult Americans — approximately 40 million people — have invested in, traded or used cryptocurrencies, according to the White House. President Joe Biden signed an executive order in March to establish the first-ever federal U.S. strategy on cryptocurrencies. Meanwhile, trading apps like Robinhood and crypto exchanges like Coinbase have made buying and selling crypto akin to trading stocks and bonds. Bitcoin's price per coin has climbed as high as near $68,000 and currently sits around $39,000, with an overall market value of $750 billion, according to CoinMarketCap.

“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," Dave Gray, head of workplace retirement offerings and platforms at Fidelity, said in the news release.

The new plan would allow retirement savers to allocate as much as 20% of their nest eggs to the cryptocurrency within Fidelity's proprietary Digital Assets Account, yet employers that decide to offer the option could choose to lower that threshold, according to The Wall Street Journal. Gray told the Journal that while initially the plans would allow employers to offer only bitcoin, he expects other digital assets will be available in the future. The account fees will be between 0.75% and 0.9%, not counting trading costs, Gray told the news outlet.

Should you add bitcoin to your 401(k)?

Cryptocurrencies like bitcoin and ether come with risks. They're extremely volatile, with bitcoin having surged to $20,000 in 2017 before falling back down to less than $5,000 in 2018, then skyrocketing to more than $60,000 per coin in 2021. The future of these digital assets is also uncertain, due to the lack of regulation around digital assets. Because of this, some financial advisors have been hesitant to recommend cryptocurrency to their clients.

The government is aware of these risks. In March, the U.S. Department of Labor cautioned employers to "exercise extreme care before they consider adding a cryptocurrency option to a 401(k) plan’s investment menu for plan participants" via published guidance. Under law, employers that offer 401(k) retirement plans have what's known as a fiduciary duty to manage the plans in the workers' best interest.

The Labor Department's announcement "reminds plan fiduciaries of their important role in selecting investment options for 401(k) plan menus,” Ali Khawar, acting assistant secretary of the Employee Benefits Security Administration said in the statement. “At this stage of cryptocurrency’s development, fiduciaries must exercise extreme care before including direct investment options in cryptocurrency.”

But cryptocurrency advocates say bitcoin can serve as a hedge against inflation, and that cryptocurrency is a strong economic force that is here to stay. If you choose to invest in crypto for your future, keep in mind that many financial advisors tend to recommend allocating no more than 5% of your investment portfolio to risky assets, depending on your financial situation, goals and risk tolerance.

Fidelity users who choose to invest in bitcoin will receive educational information on crypto when they log into their accounts, and around 5% or less of each Digital Assets Account will be in a short-term money-market fund to facilitate daily transactions, the Journal reported.

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