Bitcoin Becomes A 401(k) Option, Should You Consider It?

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Fidelity have announced that they plan to include Bitcoin
as an option in some retirement accounts later this year. Does it make sense to include the cryptocurrency as part of your retirement plans?

20% Limit

Ultimately employers will have the decision-making power on Bitcoin inclusion, and will also have to weigh legal considerations as 401(k) plan sponsors. Fidelity will make bitcoin an option, but not all employers will chose to offer it to their employees, and if so, implementation may take time. Also Fidelity, intends to cap Bitcoin ownership at 20% of the portfolio, but employers may set a lower limit. It will also be set up for longer term investment, not day trading.

Bitcoin As An Asset

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Bitcoin increasingly appears to have a role in asset allocation. It is perhaps most similar to gold. Like gold, Bitcoin only really has value because people chose to value it and like gold Bitcoin isnt a productive asset. It neither make profits nor pays a dividend. However, most importantly Bitcoin, like gold is scarce. It’s hard to dig up more gold, and Bitcoin mining will be capped at 21 million Bitcoins. Currently around 19 million Bitcoin have been mined.

That scarcity where Bitcoin’s value comes from, and that can be useful during times of inflation and weak economic performance, such as maybe now with some seeing a recession on the horizon and inflation running at high single digits. Assets like Bitcoin and gold can potentially hold their value at times when stocks and bonds perform poorly, helping balance a portfolio through all states of the economy.

Non-Productive Assets

However, over time, holding non-productive assets in isolation hasn’t been a great investment strategy. Famous investor Warren Buffett likes to make the point that if you compare a cube of gold and a farm with the same initial value, over time the farm will produce things and has the potential reinvest profits and expand. On the other hand, with a cube of gold, you’ll always have a cube of gold. It can never grow.

Bitcoin despite its wild swings as people become familiar with the technology, may ultimately become more like gold in its return profile. It may be a useful part of a portfolio, and ironically ultimately come to provide stability over the coming decades. Yet, if history is any guide, stocks and bonds may be the assets that offer the prospect of greater long-term return.


As with any long-term investment it’s also worth mentioning fees. Today the costs of owning stocks and bonds, especially in well-managed 401(k) plans is tending towards zero.

On the other hand Bitcoin is still fairly expensive to trade and custody. Over time that may tend to lessen Bitcoin’s return simply because the cost of trading and holding it is higher. That said as with stocks and bonds, those Bitcoin costs may decline over time too.

More options for any retirement plan are likely better, and including assets like Bitcoin may ultimately help diversify a retirement portfolio. However, as with gold, smaller allocations to Bitcoin may be appropriate, because stocks and bonds have historically generated the most attractive returns over time.

Ironically the fact that Bitcoin is being adopted into standard financial processes such as Exchange Traded Funds and 401(k)s may start to mean that some of its best return days are behind it as it becomes more broadly owned.


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