In April of this year, Fidelity Investments announced that it will start to give customers the option to put Bitcoin (BTC) in their 401(k)s. But US Senators are trying to convince the Financial Giant to renege from offering BTC-backed retirement accounts.
Three US Senators, namely Sen. Richard J. Durbin, Sen. Elizabeth Warren, and Sen. Tina Smith sent an official letter to Abigail Johnson, Fidelity’s CEO. They jointly stated that Bitcoin (BTC) does not belong in any retirement plan.
“…the digital asset industry has only grown more volatile, tumultuous, and chaotic—all features of an asset class no plan sponsor or person saving for retirement should want to go anywhere near”.
Durbin, et al. (2022)
The letter also said that the implosion of FTX has made it clear that the crypto industry has a serious problem. The senators are saying that the industry has many “charismatic wunderkinds”, opportunistic fraudsters, and self-proclaimed investment advisors who offer products with little transparency.
The Senators did not name any crypto personality but FTX’s founder Sam Bankman-fried was considered to be charismatic and a wunderkind or a person who achieved success at a very young age.
Digital Assets Too Risky for Retirement Plans
The retirement crisis was also discussed in the letter and the senators stated:
”…we are already in a retirement security crisis, and it should not be made worse by exposing retirement savings to unnecessary risk.”
Durbin, et al. (2022)
They further cited the steady devaluation of Bitcoin which dropped significantly this year.
It is feared that retirees will see a reduction in benefits by 2034 unless Congress intervenes. It is projected that social security paychecks will see a 33% reduction.
Americans are also considering delaying retirement because of the rising cost of living. The market turmoil has also significantly affected retirement savings and the senators are concern that including Bitcoin in the mix will exacerbate the problem.
Fidelity is Not New To Bitcoin
Fidelity has $9.6 Trillion in assets under management, making it one of the biggest financial institutions. Its announcement in April to include Bitcoin in its 401(k) offering is not the first time Fidelity dipped its toes in digital assets. It began its study on blockchain technology in 2014 and created Fidelity Digital Assets in 2018.
In July 2020, Kingdom Trust tapped Fidelity Digital Assets to safeguard its Bitcoin retirement account.
In July 2020, Microstrategy, one of the biggest institutional BTC holders, announced that it will offer Bitcoin in 401(k)s with the help of Fidelity.
Does Bitcoin Belong in a Retirement Savings Account?
Fidelity, which was founded in 1946, is not new to the financial industry and has weathered a lot of bear markets. The company has spent substantial resources on research before its Blockchain arm, Fidelity Digital Assets, was created. The decision to invest in Bitcoin was not a spur-of-the-moment decision, but rather a calculated move backed by years of research and experience.
It is true that crypto is still developing and subject to very volatile price movements. Those who have been in the space for a while recognize that it can create and destroy wealth in a very short period. In 2022, Bitcoin has fallen to below $16.000 from an all-time-high of $69.000. But even the traditional financial sector is not doing well in the bear market.
Instead of discouraging Bitcoin and Crypto adoption, it might be better to encourage financial education. Investors should be taught the risks and rewards of their decision. It is their money and they should be the ones to decide where to put it in the first place.
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