Bitcoin in your 401(k): what could possibly go wrong?

Last month, the largest administrator of 401(k) plans in the United States announced it would allow participants to put up to 20% of their retirement savings into Bitcoin. Fidelity Investments, which houses 23,000 company retirement plans, said it is responding to growing interest in digital assets by rolling out the offering to employers who choose to incorporate the option into their plan’s core lineup of investment options.

The announcement was met with cheers from crypto enthusiasts but has set off alarm bells among regulators and consumer advocates for potentially encouraging excessive speculation that could exacerbate an already critical retirement savings crisis. The battle is about to be joined, but the dramatic volatility in cryptocurrencies over the past few weeks would suggest a cautious approach since it is clear Bitcoin and its ilk are not ready for a primetime role in retirement accounts just yet.

Six months ago the total market for digital currencies was relatively small at $2.9 trillion, equal to 7% of the value of the S&P 500. Since then the crypto market has become even smaller, having lost more than half of its value. But more importantly, events of the past week have highlighted just how speculative the sector remains and illustrated how it remains essentially impossible to evaluate the fair value of virtual currencies. This past week has provided a dramatic case in point, with the implosion of what was assumed to be the most conservative corner of the digital asset market.

Cryptocurrencies like Bitcoin and Ethereum have no intrinsic value, and at any moment in time are worth whatever price willing buyers and sellers agree upon. Bitcoin, for example, has fluctuated between $68,000 and $26,000 since November, making it wholly unsuitable for routine financial transactions. To address this instability, alternative versions of digital money known as “stablecoins” were created and were designed to maintain a constant value of $1 per coin that could serve as a viable alternative to U.S. Dollars. As if to accentuate the potential risks of including digital assets in retirement plans, one of these stablecoins called TerraUSD collapsed from $1 to less than a penny and triggered a massive selloff in all other cryptos as well, vaporizing over $200 billion in a single day.

While cryptocurrencies like Bitcoin cannot yet be considered investments, the underlying blockchain technology is transformative, and individuals and institutions are certainly welcome to speculate in digital assets based upon it. However, the very nature of employer-sponsored qualified retirement plans makes them fundamentally different and, therefore, subject to greater scrutiny with respect to appropriate investment alternatives for participants.


Qualified retirement plans are subject to the regulatory jurisdiction of the Department of Labor under the Employee Retirement Income Security Act. In exchange for preferential tax treatment both for employees and for employers, 401(k) plans are subject to greater scrutiny and stricter due diligence in evaluating suitable investments within the plans. These tax preferences were carved out to promote individual retirement savings as traditional private-sector pensions waned. Tons of risky assets are available to investors individually that are not appropriate inside a qualified retirement plan. The debate now rages over just where Bitcoin falls along the risk-versus-reward spectrum.

The motivation for Fidelity is evident. The firm plan to charge ongoing management fees of between 0.75% and 0.90%, plus yet undisclosed transaction fees. Barron’s estimates that a 1% to 5% adoption rate by plan participants could generate between $200 million to $1.2 billion in revenue for Fidelity in new fees.

For companies sponsoring 401(k) plans, it will be critical to carefully consider whether to allow Bitcoin in their own plans as more custodians offer the option and more participants clamor for it. Plan sponsors are considered fiduciaries, which means they have a strict legal obligation to ensure that investment options available to participants are suitable and not excessively risky. This fiduciary duty means that employers can be sued for failing to exercise adequate due diligence. Just a month before Fidelity’s announcement, the Department of Labor issued a bulletin reminding employers of their fiduciary responsibility and warning that crypto-assets should still be considered “highly speculative.” The department’s guidance was informed by a unanimous Supreme Court ruling in January affirming plan fiduciaries have an ongoing duty to monitor investment options for suitability.

Bitcoin’s most ardent acolytes speak of its value “going to the moon” with price targets of $100,000 and beyond. Skeptics note that Bitcoin is impossible to analyze quantitatively and question how it or any of the other 15,000 cryptocurrencies have any value at all. The game is great fun, and dabbling with a limited allocation in a personal portfolio is certainly reasonable. Promoting highly risky speculation to average investors with their retirement nest egg is quite another matter.

Christopher A. Hopkins is a chartered financial analyst in Chattanooga and co-founder of Apogee Wealth Partners.