Bitcoin Is Coming to Your 401(k). But Your Employer Probably Won’t Let You Invest in It

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Fidelity, the nation’s largest provider of 401(k) retirement plans, has opened the door for a future of crypto nest eggs: the company announced it would soon allow a portion of participants’ contributions to be held in Bitcoin.

Employees who work for one of the 23,000 companies that use Fidelity’s 401(k) services will be allowed to allocate up to 20% of their portfolio to the world’s largest cryptocurrency, the company announced last week. But that’s only if their employer lets them. And given widespread pushback against the plan, including from the U.S. Department of Labor, it seems unlikely that many employers will jump at the opportunity for now.

“From what I’m hearing, most employers are on a wait-and-see basis,” says David John, a senior policy advisor at the AARP Public Policy Institute.

A recent poll by the Plan Sponsor Council of America found only 2% of the 63 employers surveyed would consider making cryptocurrency available in their plans. John says that based on his recent conversations and research, the Labor Department’s disapproval has had a huge impact in dissuading employers from taking on the risk.

Moreover, employers have a legal fiduciary duty to offer prudent investments to retirees, based on the Employee Retirement Income Security Act of 1974, which leads to more cautious decision-making. “You’ve seen a wide number of lawsuits against employers, charging that their investment mix is wrong, or that the fees are too high,” John says. “So I’ve heard employers saying, ‘Maybe we’re going to wait and see how this all plays out.’”

Fidelity’s announcement came the month after the Labor Department fired a warning shot at retirement plan distributors. In a statement, the department’s Employee Benefits Security Administration (EBSA) argued that cryptocurrencies “present significant risks and challenges” to future retirees, and that employers that try to offer such plans “should expect to be questioned.” Bitcoin’s volatility compared with traditional markets has been highlighted over the last few months: it’s down about 40% from its November high, while the S&P 500 has dropped 10% over the same period.

Fidelity, however, argued that it’s simply giving investors what they want. A 2021 study by the company found that 30% of U.S. institutional investors polled “would prefer to buy an investment product containing digital assets.” Dave Gray, Fidelity’s head of workplace retirement offerings and platforms, told the Wall Street Journal that Fidelity is seeing “growing and organic interest from clients” in cryptocurrency, especially those with younger employees.

The decision will kick in “mid-year,” according to Fidelity. Employees will only be able to integrate Bitcoin into their portfolio as opposed to other cryptocurrencies. However, Gray said it was possible that other altcoins would be available in the future.

The first employer to jump on the offer was Microstrategy, a data analytics firm led by crypto enthusiast Michael Saylor. (Microstrategy is the second-largest holder of Bitcoin of any publicly traded company.) On Twitter, Saylor argued that Bitcoin is a sound alternative investment when “equities appear increasingly risky and bonds seem structurally defective.”

The Labor Department and other experts disagreed. Last week, acting assistant EBSA secretary Ali Khawar doubled down on his department’s original stance, telling the Wall Street Journal that they have “grave concerns” about Fidelity’s decision. (He did say they would not ban cryptocurrency in retirement accounts, however.)

Vanguard, one of Fidelity’s major competitors, released a statement in November arguing that “since cryptocurrencies are highly speculative in their current state, Vanguard believes their long-term investment case is weak.”

“I think it’s a horrible mistake at this point,” John says of the idea of Bitcoin in retirement plans. “Bitcoin is exciting, interesting and innovative. But for retirement, you need to have a dependable source of savings and income as opposed to what you might ‘play-invest’ in. We only have a few years of data—and there is a very strong possibility of a very sudden and precipitous drop at the wrong possible time.”

John also pointed out Fidelity’s decision to allow investors to hold up to 20% of their portfolios in Bitcoin is far higher than the cap for comparably volatile investments. “When we look at most of the alt investments, like real estate investment trusts or private equity, the usual proportion for risky investments is along the lines of two to three percentage points,” he says.

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