If you're dreaming of retiring on a bitcoin windfall, you may want to reconsider.
Bitcoin's recent price fall has captured headlines for its breadth — declining by more than one-third since March and by more than 50 percent since November. Some are now wondering whether the sell-off could reverberate throughout the broader economy.
Over the past week, the price has quietly stabilized at around $30,000. For bitcoin's most ardent supporters — and for those with an extensive risk appetite — it may be a buying opportunity.
The financial services company Fidelity Investments said it was giving companies the ability to offer employees the option to invest up to 20 percent of their 401(k)s in bitcoin. That means people who wants to add bitcoin to their 401(k) would first have to see if their employer offers it.
"There is growing interest from (retirement) plan sponsors for vehicles that enable them to provide their employees access to digital assets in defined contribution plans, and in turn from individuals with an appetite to incorporate cryptocurrencies into their long-term investment strategies," said Dave Gray, head of workplace retirement offerings and platforms at Fidelity Investments.
In a follow-up interview, Gray said any company with employees who may be interested in digital currencies like bitcoin as part of the long-term transformation of the financial system should consider the product. It should not, however, be used as a short-term bet on crypto returns, he said.
"For (retirement) plan sponsors that choose to offer our product, it’s an opportunity to ... buy in over time because they may believe this is the right long term investment strategy to supplement a traditional portfolio," Gray said.
Does investing in cryptocurrencies make sense for your retirement account?
Even before bitcoin's dramatic sell-off, one analyst came out vehemently against the idea of investing any part of a 401(k) in cryptocurrency. In an April 27 note, Morningstar senior research analyst Madeline Hume wrote:
"While Morningstar is not against cryptocurrency — and full disclosure, I own some bitcoin — Fidelity’s strategy for capitalizing on the crypto momentum is misplaced," Hume wrote.
"At this stage, mixing bitcoin and 401(k) plans is a terrible idea."
The differences between traditional investment vehicles like stocks and bonds and bitcoin are clear.
Stocks and bonds, which make up most retirement portfolios, are backed by underlying cash flows in the form of dividends or interest payments. These allow analysts to model or estimate the future prices of these investments.
On the other hand, bitcoin has no underlying assets, Hume said.
"The absence of fundamentals and valuations makes it a bad fit for a 401(k) plan," she said, adding that bitcoin's price is usually driven by speculators. These are individuals who try to convince others that bitcoin's price will continue to go up.
Over time, most stocks or bonds will ultimately increase in value as the underlying companies grow and become more profitable.
But the future price of Bitcoin is nearly impossible to predict, Hume says. It may some day go up again, but its movements are driven more by those speculative narratives.
"Everyone has a neighbor or nephew that hit it big in crypto, but even institutions smell blood in the water on returns," Hume said in a follow-up interview. She added: "There are no shortcuts to retirement."
That sentiment was echoed by Jackson Wood, a portfolio manager and advisor at Freedom Day, a financial planning advisory. Wood also writes about cryptocurrencies.
"401(k)s and IRAs are very important accounts to nearly every U.S. retiree," he wrote in a May 11 feature for the cryptocurrency news site Coindesk.com. "These accounts are the best tools we have for building retirement portfolios, so the money in these accounts is extremely important to the owner’s future well-being. Allocating to a speculative asset like bitcoin just because it’s suddenly available is not a wise decision."
Wood told NBC News he did not think many retirement plan sponsors, also known as fiduciaries, would take Fidelity up on its bitcoin 401(k) product.
"Even though it made waves and a lot news, I doubt many fiduciaries will feel comfortable with it," Wood said.
Indeed, for more mainstream companies, the product seems to be a no-go. NBC News asked a dozen Fortune 100 companies, as well as Twitter, whether they were making bitcoin available as a choice for their employees’ 401(k)s. Among those who responded, none said they were offering such a product.
What are the risks and rewards of crypto as part of your 401(k) strategy?
Despite the risks, at least one employer has signed up to offer Fidelity's new product to its employees: MicroStrategy, a business and software services company. Its CEO, Michael Saylor, has been a vocal proponent of bitcoin.
"MicroStrategy looks forward to working with Fidelity to become the first public company to offer their employees the option to invest in bitcoin as part of our 401(k) program," Saylor said in a statement. "Teaming with companies like Fidelity that are innovating in bitcoin for corporations is important to us, as is furthering the development of the bitcoin ecosystem for institutional investors."
Morningstar's Hume said MicroStrategy's announcement is likely part of its brand to be first-movers in the cryptocurrency space. According to a company presentation, MicroStrategy currently holds 129,218 bitcoin; at $30,000 apiece, it is worth a total of about $3.9 billion.
So far, Fidelity is the only large retirement services platform or investment brokerage firm to offer a bitcoin 401(k) product. Vanguard said it had no plans to do so.
"Since cryptocurrencies are highly speculative in their current state, Vanguard believes its long-term investment case is weak," it said in a September 2021 note to clients — its most recent opinion on the matter.
In a statement, a Schwab representative said some of its products offer indirect cryptocurrency exposure, but that assets in these products equaled less than 1 percent of total 401(k) brokerage assets at Schwab as of the end of 2021. It did not address whether crypto is a sound investment.
Recent bitcoin decline throws its value into question
Given bitcoin's recent price volatility, it is hard to know when, if ever, bitcoin would begin to be considered a mainstream investment tool.
Meanwhile, Fidelity's product is being offered despite recent guidance from the Department of Labor, which regulates 401(k) plans. The department has cautioned retirement plan managers to be judicious when it comes to cryptocurrencies.
"At this early stage in the history of cryptocurrencies, the Department has serious concerns about the prudence of a fiduciary’s decision to expose a 401(k) plan’s participants to direct investments in cryptocurrencies, or other products whose value is tied to cryptocurrencies," it said in March, before Fidelity announced it was offering bitcoin. "These investments present significant risks and challenges to participants’ retirement accounts, including significant risks of fraud, theft and loss."
In an interview with NBC News, Labor Department acting Assistant Secretary Ali Khawar said that not only is bitcoin too new but that the narratives surrounding it have obscured the larger risks associated with it.
"What we see is a universe where, for an individual saver, or even employers hearing that this is the next sure thing — that there's an element of 'Get in on the ground floor or you’re going to regret it,'" Khawar said. "What we don’t hear is the other side of that equation, which is that this is a relatively young asset class, with a lot of difficult questions that are not being answered, like how to value it, or even how it's being stored."
In response, Fidelity's Gray said he agrees with the department's guidance, though he notes that the company has not banned investing cryptocurrencies outright. He said Fidelity adheres to strict security standards that would meet federal guidelines.
Gray added that he believes a shift is inevitable, citing data that showed younger generations of investors are increasingly tying their future wealth gains to cryptocurrencies.
"Among 'Gen Z,' 39 percent are using it, and for millennials, 38 percent," he said. "So from that perspective, we think the younger workforce will continually look for a benefits program to provide access to investments that they're comfortable with because they've grown up in that environment."