Bitcoin is crashing. The Biden administration wants to keep you out of your 401(k).

“The atmosphere — the YOLO and FOMO of cryptocurrency — are our concerns,” Acting Assistant Secretary of the Department of Labor Ali Khawar said in an interview. “Right now, you don’t know whether you’re betting on the winning horse or not. It’s very speculative.”

Fidelity — one of the most prominent old-school financial giants to embrace digital currency trading — is pushing ahead with the initiative as Washington officials struggle to keep up with the highly volatile $1.3 trillion cryptocurrency market. The company’s decision shows how Wall Street advocates are starting to lend their lobbying power to the cryptocurrency industry’s struggle to shape the policies that are now being written as virtual currency becomes popular.

With 23,000 companies using Fidelity for employee retirement, AARP and consumer advocates are also sounding the alarm that launching cryptocurrencies into 401(k)s could leave employers and workers holding the bag. The Department of Labor is warning that companies that put cryptocurrencies on their retirement plan menus could be investigated for not acting in the best interests of their employees.

“It’s very difficult to separate the facts from the hype — and there’s a lot of hype,” said Micah Hauptman, director of investor protection at the Consumer Federation of America. “Offering these assets to plan sponsors to include in their rosters can increase their liability, and that’s not good for anyone. It’s not good for small businesses… it’s not good for their employees.”

Fidelity has been building a presence as a cryptocurrency giant for nearly a decade, with a digital asset platform that includes everything from Bitcoin mutual funds to custodial services for institutional investors. Last year, the company led a new advocacy and lobbying group – the Crypto Council for Innovation – with fintech startups that became powerhouses Block (formerly Square) and Coinbase.

Fidelity’s Bitcoin 401(k) announcement in late April came more than a month after the Labor Department warned against such a move.

DOL said in March that retirement plan administrators could be investigated if they choose to invest their employees’ defined contribution plans in digital assets, including Bitcoin.

The plan’s trustees – usually employers – are held to particularly high standards of prudence when it comes to choosing what investment options are available to their employees. Some investments, such as collectibles and certain precious metals, are prohibited. While the DOL has stopped putting cryptocurrencies on a no-fly list, it has “serious concerns about the prudence” of investments in digital assets. This means the employer can be held liable if an employee’s Bitcoin 401(k) holdings go bankrupt.

Notably, Bitcoin is not yet planned as an option in any 401(k)s where Fidelity acts as a fiduciary, said Fidelity spokesman Eric Sandwen.

In an April 12 response letter, Fidelity’s Head of Workplace Products and Platforms Dave Gray urged the Department of Labor to rescind its guidance or revise it to say that it is not unwise to include crypto in a 401( k)s.

Fidelity’s Bitcoin 401(k) offering, which it plans to launch later this year, leaves decision making to individual employees who opt into the program through their employer.

The Labor Department issued its warning in part due to a lack of clarity about how digital assets will be regulated, as well as concerns about scams, market manipulation and other fraud, Khawar said. There are no clear references for attaching valuations to digital assets, nor are there any rules on how plan administrators maintain custody of a retiree’s cryptocurrency assets.

“We don’t know what regulatory changes are going to happen in this market and who is going to adapt better or worse to them,” he said. “Even if you are a strong supporter of cryptocurrency, I don’t think anyone is sure that Bitcoin itself will be the currency that will succeed in ways that others won’t.”

There are also questions about how Bitcoin or other digital assets would fit into the context of typical 401(k) investment portfolios, which are built to leave retirees with a reliable stream of income as they withdraw their savings. AARP, the advocacy group for Americans over 50, argues that the recent catastrophic cryptocurrency crisis is evidence that digital currency is too dangerous for retirement planning.

“It is a horrible mistake to use crypto [for retirement plans],” said David John, senior strategic policy advisor at the AARP Public Policy Institute. “The last week to 10 days or so has proved this point for us.”

Fidelity’s decision to go ahead drew a quick rebuke from Warren and Sen. Tina Smith (D-Minn.), who in a May 4 letter asked Fidelity CEO Abigail Johnson why the company failed to heed the Labor Department’s warning. Senators cited extreme price volatility, which they say is exacerbated by influences such as Tesla CEO Elon Musk. They also asked about potential conflicts of interest related to Fidelity’s foray into Bitcoin mining.

“In short, investing in cryptocurrencies is a risky and speculative gamble, and we are concerned that Fidelity will take these risks with the retirement savings of millions of Americans,” they said.

A day after Warren and Smith denounced the company, Tuberville introduced the “Financial Freedom Act” that would prohibit the Department of Labor from restricting the types of investments allowed in self-directed 401(k) accounts. While Tuberville spokesperson Ryann DuRant said the senator’s team met with Fidelity and cryptocurrency trading groups ahead of the bill’s release, she said Fidelity played no role in crafting the language. legislative.

Traditional financial trading groups, including the American Bankers Association and the Securities Industry and Financial Markets Association, have sent letters to the DOL questioning the guidance and demanding revisions as well.

“Government doesn’t have to stand in the way of retirees who want to make their own investment choices,” Tuberville said in a statement. “When you earn your salary, how you invest your money should be your decision. My legislation guarantees it to be so.”

Sandwen said the company has a number of consumer protections, including “excessive trading oversight, transparency, education, and cybersecurity capabilities.”

“Fidelity looks forward to continuing the dialogue on this exciting offering with federal regulators and policymakers consistent with our approach to the many new services we offer our customers,” said Sandwen.

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