A token with the Fidelity logo on it
Image: Christopher T. Fong/Protocol

Fidelity makes a risky bitcoin bet

Protocol Fintech

Good morning, and welcome to Protocol Fintech. This Wednesday: Fidelity’s risky new bitcoin bet, Revolut’s expanding super app and Robinhood’s layoffs.

A risky retirement bet

Fidelity’s huge retirement-savings business is the latest part of the financial giant to go crypto. The company launched Digital Asset Accounts on Tuesday, allowing account holders to have a portion of their retirement savings allocated to bitcoin. It's starting by offering the accounts to employees of MicroStrategy, a software company that has also placed big bets on cryptocurrency.

It’s a big moment for crypto. Though Fidelity isn't the first firm to offer crypto retirement accounts, the move to offer crypto-enabled 401(k) plans is the first of its kind by a major firm.

  • Besides MicroStrategy, the option will be broadly available for employers to add to their 401(k) plans by the middle of this year, Fidelity said in its announcement. Prior to this, Fidelity had only offered cryptocurrency accounts to institutional and accredited investors. Currently, the plans will only invest in bitcoin, not other cryptocurrencies.
  • MicroStrategy CEO Michael Saylor is an outspoken bitcoin advocate, which is a factor in all of this. “There is growing interest from plan sponsors for vehicles that enable them to provide their employees access to digital assets in defined contribution plans," Dave Gray, Fidelity's head of Workplace Retirement Offerings and Platforms, said in a statement.

Fidelity has stood out for a while for its embrace of digital assets. It began experimenting with cryptocurrencies in 2014 and started testing products with its own employees in 2016.

  • Fidelity also has exposure to crypto through an institutional custody business, Fidelity Digital Assets. That unit obtained a BitLicense in 2019 from New York’s Department of Financial Services, which has notoriously strict rules for virtual-currency businesses.
  • As Fidelity plunges into the digital asset world, it’s making other major firms seem very hesitant by contrast. Sébastien Page of T. Rowe Price said in August that the mandates it manages for its clients "do not currently appear well suited for investing in cryptocurrencies, especially given the extraordinary level of speculation and volatility in many crypto markets," though the firm will continue to research it. Vanguard said it also doesn't offer cryptocurrencies as an investment option, but acknowledges the "impact they’re making in the investing world."
  • "As cryptocurrencies and blockchain become increasingly mainstream, we’ll continue to monitor their development and discern the best path forward for our investors," Vanguard wrote in a piece of advice for investors in September.

Fidelity is taking on a big regulatory risk along with its pioneering status. That’s an unusually bold move from a company with a conservative reputation.

  • The Department of Labor released guidance in March on putting cryptocurrencies in retirement accounts, strongly advising caution. The department warned companies considering this option of cryptocurrencies' "extreme price volatility" and "significant risks of fraud, theft, and loss."
  • Some of the department's other concerns include lack of investment knowledge from plan participants, record-keeping concerns and the accuracy of the valuation of cryptocurrency.
  • The Department of Labor oversees workplace retirement plans under the Employee Retirement Income Security Act of 1974, which puts it alongside a host of federal agencies looking to stake a claim to crypto oversight.

Fidelity’s move could prompt a regulatory showdown. The Department of Labor warned the industry in its March note that it soon planned to investigate firms that offered cryptocurrencies in workplace retirement plans. It now has a prime example — and a test case.

— Nat Rubio-Licht (email | twitter)

A version of this story first appeared on Protocol.com. Read it here.


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On the money

On Protocol: Robinhood is laying off 9% of its staff. CEO Vlad Tenev said the company was cutting back on duplicative roles after a period of “hypergrowth.”

Revolut CEO Nik Storonsky says the neobank wants to offer crypto wallets. It’s also looking at mortgages as it builds out its super app.

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Thanks for reading — see you tomorrow!

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