What would Ned Johnson do?
The late, great Fidelity Investments honcho transformed his family’s Boston-based money management company into one of the largest in the world over the course of a long career.
Johnson died on March 23 this year at the age of 91.
Coincidence? Probably. The bitcoin move had certainly been in the pipeline for months. And Fidelity had dipped its toe into the bitcoin pool long ago.
But it raises the intriguing question of what Ned would have thought of this latest move. The old Yankee and the Boston Brahmin had a reputation as a conservative steward of client assets. He was also jealous of Fidelity’s corporate reputation. And the bitcoin move is generating publicity for all the wrong reasons. This includes entering into public discussions with senators and the Department of Labor. And associate the company with a steep decline in asset that has fallen by a third since the announcement.
Senator Dick Durbin of Illinois has now joined colleagues Tina Smith of Minnesota and Elizabeth Warren of Fidelity’s home state of Massachusetts in publicly berating the bitcoin fund giant.
Slamming cryptocurrency as a “volatile, illiquid, and speculative asset” and a “casino”, three senators want to know why Fidelity, “a trusted name in the pension industry” and “a leading name in the world of finance” would approve it in the 401 (k) plans.
In fact, the letter from the three senators not only criticizes Fidelity, but virtually everyone who has been involved in the rampage of these cryptocurrencies in the past two years. This includes “social media investment experts, well-paid actors and celebrities, and even some Washington lawmakers” who made the cryptocurrency look respectable to the public and helped bring bitcoin up to around $ 60,000, they claimed.
“Some have even gone so far as to call bitcoin an ‘inflation hedge’ which would prove to be a useful investment tool during times of high inflation,” they added.
Senator Smith sent this statement to MarketWatch on Friday:
“I start from the fundamental value that retirement security is extremely important. We just need to look to the Great Recession to see how volatile and risky retirement investing has really hurt many people. I think cryptocurrencies are often misunderstood and have proven quite unpredictable and could leave people investing significant portions of their retirement high and dry. I believe we need to think carefully about whether financial institutions should allow people to deposit their cryptocurrency withdrawals in the absence of solid regulatory safeguards. “
“Fidelity continues to have a strong interest in digital assets and the blockchain. We pride ourselves on the Digital Assets Account as a responsible solution to meet mainstream interest demands. In fact, customer interest has not only been strong, it also spans a wide range of industries and company sizes. We are on track to launch our first sponsor customer plan 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 directly with them. “
Fidelity says it is responding to the customer’s interest. The company provides the platform and back office for the 401 (k) company and retirement plans. It currently serves 23,000 businesses and nearly 40 million plan participants.
The company says bitcoin is the only cryptocurrency it intends to offer in its suite of offerings, and that participants will be able to pledge no more than 20% of their funds in the digital currency. Sponsors of the plan do not have to include the bitcoin offering in their 401 (k) and can impose lower limits even if they do, adds Fidelity.
You can see it in two ways.
Personally, I am not a fan of bitcoins. For years I’ve been asking 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 haven’t had an answer yet. If it were the only digital currency in the world it would have a 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 smart doesn’t make the coin valuable. Sorry, I’ve seen this movie before, in 1999-2000.
Don’t even get me started on NFT.
Litigator Mark Bokyo told a retirement industry conference this week that including bitcoin in 401 (k) plans will be great news … for lawyers, when attendees end up suing.
On the other hand, there is nothing stopping people from betting their 401 (k) plans on all kinds of “volatile, illiquid and speculative” assets, which includes many stock market stocks. Many plan sponsors allow you to hold individual stocks in your plan and diversified funds.
And there’s nothing stopping people from speculating on these digital currencies with their hard-earned cash outside of their retirement accounts. As long as regulators allowed this speculative bubble to burst and then collapse, people would find a way to lose money. Whether we want to encourage them to blow their 401 (k) on it is another matter.