Opinion: Fidelity’s bitcoin move getting all the wrong publicity

What would Ned Johnson do?

The late, great Fidelity Investments honcho built his family’s Boston-based money management firm into one of the biggest in the world over the course of a long career.

Johnson died on March 23 of this year, age 91.

On April 26, just over one month later, his daughter and heir, Fidelity Chief Executive Abby Johnson, unveiled controversial plans to include bitcoin in the 401(k) platform it runs on behalf of thousands of U.S. companies.

Coincidence? Probably. The bitcoin move had surely been in the pipeline for months. And Fidelity had dipped its toe into the bitcoin pool long before.

But it raises the intriguing question of what Ned would have thought of this latest move. The old Yankee and Boston Brahmin had a reputation as a conservative steward of clients’ assets. He was also jealous of Fidelity’s corporate reputation. And the bitcoin move is generating publicity for all the wrong reasons. That includes getting into public scrapes with senators and the Labor Department. And associating the firm with a tanking asset that is down by a third since the announcement.

Sen. Dick Durbin of Illinois has now joined colleagues Tina Smith (Minnesota) and Elizabeth Warren, from Fidelity’s home state of Massachusetts, in publicly reproving the fund giant over bitcoin.

Slamming the cryptocurrency as a “volatile, illiquid, and speculative asset” and a “casino,” three senators want to know why Fidelity, “a trusted name in the retirement industry” and “one of the leading names in the world of finance” would endorse it in 401(k) plans.

Actually, the letter from the three senators doesn’t just criticize Fidelity, but pretty much everyone involved in ramping these cryptocurrencies over the past couple of years. That includes “investment experts on social media, to highly paid actors and celebrities, and even some Washington lawmakers” who made cryptocurrency seem respectable to the public and helped drive bitcoin up to about $60,000, they said.

“Some even went so far as to call bitcoin an ‘inflation hedge’ that would prove a useful investment tool during times of high inflation,” they added.

Yes, indeed.

Sen. Smith sent this statement to MarketWatch on Friday:

“I start with the fundamental value that retirement security is extremely important. We only need to look at the Great Recession to see how volatile and risky retirement investments really hurt a lot of people. I think that crypto is often misunderstood and has shown to be pretty unpredictable, and could leave people who invest significant portions of their retirement high and dry. I believe we need to think carefully about whether financial institutions should enable people to bank their retirements on cryptocurrency absent strong regulatory safeguards.”

Fidelity responded:

“Fidelity continues to have strong interest for digital assets and the blockchain. We are proud of the Digital Assets Account as a responsible solution to meet the demands of mainstream interest. In fact, client interest has not only been strong, but also spans across a wide range of industries and company sizes. We are on track to launch our first plan sponsor clients this fall.

We are continuing our respectful dialogue with policy makers to responsibly provide access with all appropriate consumer protections and educational guidance for plan sponsors as they consider offering this innovative service. Consistent with our ongoing dialogue with regulators and policy makers, we are working with them directly.”

Fidelity says it is responding to client interest. The company provides the platform and back office for company 401(k) and retirement plans. It currently serves 23,000 companies and nearly 40 million plan participants.

The company says bitcoin is the only cryptocurrency it plans to offer in its suite of offerings, and participants will be allowed to commit no more than 20% of their funds to the digital currency. Plan sponsors do not have to include the bitcoin offering in their 401(k)s and they can impose lower limits even if they do, Fidelity adds.

You can view this two ways.

Personally, I am no fan of bitcoin. I have been asking for years for someone, anyone, to explain to me why we need it, and what I can do with it that I can’t do with something else. I still haven’t had an answer. If it was the only digital currency in the world it would have monopoly value. But coinmarketcap.com lists nearly 10,000 competing digital coins and new ones are being launched all the time. Just because the technology behind it is clever doesn’t make the coin valuable. Sorry, I saw this movie before, in 1999-2000.

Don’t even get me started on NFTs. 

Litigator Mark Bokyo told a retirement industry conference this week that including bitcoin in 401(k) plans is going to be great news…for lawyers, when participants end up suing.

On the other hand, there is nothing to stop people betting their 401(k) plans on all sorts of “volatile, illiquid and speculative” assets, which includes a lot of the stocks on the stock market. Many plan sponsors allow you to hold individual stocks in your plan as well as diversified funds.

And there is nothing to stop people speculating on these digital coins with their hard-earned money outside of their retirement accounts, either. As long as regulators allowed this speculative bubble to blow up and then collapse, people were going to find a way to lose money. Whether we want to encourage them to blow their 401(k)s on it is another matter.

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