Three Senate Democrats have written to Fidelity, raising concerns once again about the “dangers” associated with investing in bitcoin and digital assets, especially within retirement plans.
In their July 26 letter to Fidelity Investments CEO Abigail Johnson, Sen. Dick Durbin (D-IL), the Senate’s Majority Whip, along with Sens. Elizabeth Warren (D-MA) and Tina Smith (D-MN), request answers from Fidelity on their decision to allow 401(k) plan sponsors to offer plan participants exposure to Bitcoin, which they characterize as a highly volatile and unregulated digital asset.
“While plan sponsors ultimately are responsible for choosing the investments available to participants, it seems ill advised for one of the leading names in the world of finance to endorse the use of such a volatile, illiquid, and speculative asset in 401(k) plans—which are supposed to be retirement savings vehicles defined by consistent contributions and steady returns over time,” the senators write.
The senators acknowledge Fidelity’s efforts to help working Americans realize a more secure retirement but add that they believe the decision is disturbing. “Perhaps most troubling is that in pointing to the risks of investing in Bitcoin on its website and planning to cap plan participants’ Bitcoin exposure to 20 percent, Fidelity is acknowledging it is well aware of the dangers associated with investing in Bitcoin and digital assets, yet is deciding to move ahead anyway,” the letter states.
The senators suggest that while the underlying technology of blockchain shows promise and has the potential to be used for innovative and exciting applications, consumers must be wary of the risks associated with Bitcoin and other digital assets. The letter observes that Bitcoin topped out at $68,000 in November 2021, but today stands at $20,849—more than two-thirds off its peak.
“There are many ways that Americans can invest in Bitcoin and the crypto currency casino, but it seems as though this latest effort, through what is supposed to be a retirement nest egg, is a bridge too far,” the senators continued.
Earlier Letter to Fidelity
While the July 26 letter doesn’t include a specific list of questions, other than asking why they are doing this, it comes after Warren and Smith sent a letter to Johnson on May 4 questioning the firm’s decision to allow Bitcoin investments for 401(k) plans, given the DOL’s warning about allowing crypto investments in 401(k) plans.
In that letter, Warren and Smith provided a list of questions asking Fidelity to explain, among other things, why the organization “ignored” DOL’s warning, what risks does Fidelity assess that Bitcoin presents to its customers, and what fees customers will incur by investing in Bitcoin. Fidelity responded at the time that it looked forward to having a respectful dialogue with policymakers and that it would respond directly to the senators.
Debate Continues
Meanwhile, the debate continues over the use of cryptocurrency in 401(k) plans, ranging from a lawsuit filed against the Department of Labor regarding its guidance on the use of cryptocurrency in DC plans to legislation that would prohibit regulations that would constrain or prohibit the type of investments that could be offered through a brokerage window in a DC plan.
In contrast, House Ways & Means Committee Chairman Rep. Richard Neal (D-MA) asked the Government Accountability Office (GAO) in a June 15 letter to examine the use of cryptocurrency and digital assets in retirement plans and what oversight of those options exists.
