Senator Elizabeth Warren calls for Fidelity to explain how it will address risks associated with people investing in bitcoin through their 401(k)
Posted On May 5, 2022
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- Senators Elizabeth Warren and Tina Smith asked Fidelity to answer questions about its plan to allow bitcoin investment in 401 (k) plans.
- They wrote a letter asking for answers by May 18 about volatility and other potential risks.
- The senators said Fidelity may have a potential conflict of interest as it ran a bitcoin and ethereum mining operation.
Fidelity must address risks and potential conflicts of interest related to its plan to allow bitcoin investment in 401 (k) retirement accounts, according to Senators Elizabeth Warren of Massachusetts and Tina Smith of Minnesota, who have asked for answers from the financial services heavyweight by later this month.
The senators sent a letter to Fidelity’s CEO Abigail Johnson dated May 4 following the company’s announcement in April that it will open its 401(k) plans to bitcoin by the middle of 2022, the newspaper reported Thursday. The company, which manages $2.7 trillion in assets for 20 million clients, is the first major retirement-plan provider to make such a move.
“In short, investing in cryptocurrencies is a risky and speculative gamble, and we are concerned that Fidelity would take these risks with millions of Americans’ retirement savings,” the Democrats wrote, giving Fidelity until May 18 to answer a number of questions about their approach toward bitcoin investment.
“Bitcoin, the cryptocurrency your company has deemed sound enough for your customers’ retirement savings accounts, has a particularly volatile history,” wrote Warren and Smith.
They recalled bitcoin surging to a high of nearly $69,000 in November then sliding to $33,000 “just over two months later,” as well as a drop of as much as 30% in a single day.
“Bitcoin’s volatility is compounded by its susceptibility to the whims of just a handful of influencers. Elon Musk’s tweets alone have led to Bitcoin value fluctuations as high as 8%,” referencing bitcoin proponent and Tesla boss Musk.
They also asked about potential risks of fraud and theft posed by bitcoin investment. Warren, among other assignments, sits on the Senate’s subcommittee on financial institutions and consumer protection. Warren also sits with Smith on the banking, housing and urban affairs committee.
Warren and Smith also said they were concerned about Fidelity’s “potential conflicts of interest” and the extent to which they may have affected the decision to offer bitcoin. They noted a 2017 announcement by Fidelity that it had set up a small bitcoin and ethereum mining operation that was making money, and its later expansion of crypto activities which included opening a crypto fund for wealthy investors.
“Despite a lack of demand for this option – only 2% of employers expressed interest in adding cryptocurrency to their 401(k) menu – Fidelity has decided to move full speed ahead with supporting Bitcoin investments,” the lawmakers wrote.
They asked Fidelity how much it has earned from crypto mining activities since it started its mining operation
In another question, they asked: “When Fidelity made its decision to allow sales of Bitcoin in retirement accounts, how did the company address its own conflicts of interest, given that the company now is both a Bitcoin miner and a purveyor of Bitcoin?”
Bitcoin on Thursday traded at around $38,555 and is down roughly 17% so far in 2022.