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Fidelity to allow Americans to invest retirement savings in bitcoin (BTC)

By Monte Stewart


Updated

Fidelity Investments is pictured in New York City.
Fidelity Investments will allow US employees to invest in bitcoin through their 401(k) retirement plans. - Photo: Shutterstock

US-based financial services company Fidelity Investments will allow American employees to invest in bitcoin (BTC) through their 401(k) retirement savings accounts, the firm said on Tuesday.

Pending employer and regulatory approval, the move could create more bitcoin investment opportunities for millions more Americans. According to The New York Times, Fidelity is the largest provider of 401(k) retirement plans.

Employee contributions are tax-deductible, made through payroll deduction, and matched by employers, who sponsor the plans.

Bitcoin (BTC) to US dollar 

Fidelity introduced a digital assets account on its website. The company said the bitcoin will be securely custodied by Fidelity Digital Assets, an institutional-grade investment platform.

“We started to hear a growing interest from plan sponsors, organically, as to how could bitcoin or how could digital assets be offered in a retirement plan,” Dave Gray, head of workplace retirement offerings and platforms at Fidelity Investments, told The New York Times, explaining the motivation behind the offering.

Fidelity’s retirement accounts held $2.4trn (£1.91) in 401(k) assets in 2020, the publication reported, citing research firm Cirulli Associates data.

Gray said MicroStrategy (MSTR), a business analytics company that already holds billions of dollars in bitcoin, has already signed up. MSTR’s stock was down almost 6% Tuesday morning in North America.

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MicroStrategy (MSTR) to US dollar

Employers may allow employees to invest up to 20% of their contributions in BTC, but that limit could change in the future, The New York Times reported. Employers will set the investment cap.

ETH/USD

3,501.03 Price
-0.230% 1D Chg, %
Long position overnight fee -0.0616%
Short position overnight fee 0.0137%
Overnight fee time 21:00 (UTC)
Spread 6.00

XRP/USD

0.61 Price
+4.820% 1D Chg, %
Long position overnight fee -0.0753%
Short position overnight fee 0.0069%
Overnight fee time 21:00 (UTC)
Spread 0.01168

US100

19,526.60 Price
-1.140% 1D Chg, %
Long position overnight fee -0.0263%
Short position overnight fee 0.0041%
Overnight fee time 21:00 (UTC)
Spread 7.0

BTC/USD

66,667.40 Price
-0.530% 1D Chg, %
Long position overnight fee -0.0616%
Short position overnight fee 0.0137%
Overnight fee time 21:00 (UTC)
Spread 106.00

Annual fees will range from 0.75% to 0.90%, depending on the amount and employer, and an additional “competitively priced” trading fee will apply, according to the newspaper.

But it remains to be seen how federal regulators will react. In a March, compliance directive the US Labor Department cautioned fiduciaries to “exercise extreme care” before they consider adding a cryptocurrency option to a 401(k) plan's investment menu.

“In a defined contribution plan, such as a 401(k) plan, the value of a participant's retirement account depends on the investment performance of the employee's and employer's contributions,” the Labor Department said in the directive. “When defined contribution plans offer a menu of investment options to plan participants, the responsible fiduciaries have an obligation to ensure the prudence of the options on an ongoing basis.”

Cryptocurrencies and investment products tied to them pose risks of fraud, theft, and loss to investors’s retirement accounts, because the investments are speculative and volatile, and inexpert plan participants are challenged to make informed investment decisions, added the Labor Department. Digital assets also pose custodial and record-keeping concerns.

Fidelity’s move continues the company’s recent trend of offering more bitcoin investment opportunities. In November 2021, Fidelity launched Canada’s first institutional-grade bitcoin custody service. Then, in December, the company launched the Fidelity Advantage Bitcoin ETF providing Canadian and US dollar versions under the respective symbols FBTC and FBTC.U, and introduced the Fidelity Advantage Bitcoin ETF Fund on the Toronto Stock Exchange, in December. The fund invests in the ETF.

This year, Fidelity listed a similar investment vehicle, the Physical Bitcoin ETP, in Germany and Switzerland.

“Fidelity believes that blockchain technology and digital assets are going to be a much larger part of the financial industry’s future,” Gray told Barron’s on Tuesday.

Markets in this article

BTC/USD
Bitcoin / USD
66667.40 USD
-352 -0.530%
MSTR
MicroStrategy Incorporated
1779.05 USD
221.74 +14.320%

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The difference between trading assets and CFDs
The main difference between CFD trading and trading assets, such as commodities and stocks, is that you don’t own the underlying asset when you trade on a CFD.
You can still benefit if the market moves in your favour, or make a loss if it moves against you. However, with traditional trading you enter a contract to exchange the legal ownership of the individual shares or the commodities for money, and you own this until you sell it again.
CFDs are leveraged products, which means that you only need to deposit a percentage of the full value of the CFD trade in order to open a position. But with traditional trading, you buy the assets for the full amount. In the UK, there is no stamp duty on CFD trading, but there is when you buy stocks, for example.
CFDs attract overnight costs to hold the trades (unless you use 1-1 leverage), which makes them more suited to short-term trading opportunities. Stocks and commodities are more normally bought and held for longer. You might also pay a broker commission or fees when buying and selling assets direct and you’d need somewhere to store them safely.
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