You Can Add Bitcoin to Your 401(k) Now ... But Should You?

Fidelity, one of the nation’s largest 401(k) providers, said it will allow users to add Bitcoin to their 401(k) plans. Is this a good idea?

Golden Bitcoins
Updated May 28, 2024
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Fidelity Investments, one of the nation’s largest 401(k) providers, recently announced that it was allowing investors to add bitcoin to their 401(k) investments.

Not long after Fidelity’s announcement, the U.S. Department of Labor warned that investing in crypto might not be a wise idea for investors. Cryptocurrencies like bitcoin can present serious risks to retirement savings, which are meant to provide financial security in old age, says the Labor Department.

“At this early stage in the history of cryptocurrencies … the U.S. Department of Labor has serious concerns about plans’ decisions to expose participants to direct investments in cryptocurrencies or related products, such as NFTs, coins, and crypto assets,” the Department of Labor said in a statement.

Should you add bitcoin to your 401(k)? Here are a few things to consider so you can make wise retirement investments and stop throwing away your money.

Bitcoin is volatile

Kaspars Grinvalds/Adobe Man trading crypto currencies online.

Investing in Bitcoin, or any cryptocurrency, can be highly speculative. We’ve all heard stories about someone who made tons of money on bitcoin. But there are just as many, if not more, stories about those who have lost a lot by investing in crypto.

Bitcoin’s value is volatile. It peaked in November 2021 at over $67,000 but has dropped considerably since then. By June of 2022, it had fallen below $20,000.

The value of bitcoin can rise and fall on a whim. For example, in May 2021, bitcoin’s value dropped about 12% after Tesla CEO Elon Musk tweeted that the electric car maker was suspending accepting bitcoin for car purchases.

A month later, bitcoin was up again after Musk reversed course and said car purchases could be made with the cryptocurrency.

Bitcoin is not actually a coin

lucadp/Adobe crypto currency

Bitcoin beginners may not know much about how cryptocurrency works or the blockchain technology behind it. You may see bitcoin images and think that it’s an actual coin.

However, bitcoin is a digital asset that exists virtually. It’s not a physical currency. It exists as lines of computer code.

Unlike stock, you do not own a piece of a company

DenPhoto/Adobe  iPhone X with application Stocks of Apple

When you buy stock, you purchase a small piece of ownership in a company. Your investment is tied to the company’s performance. If the company does well, you make money. If the company performs poorly, you lose money.

Unlike stocks and bonds, bitcoin has no assets or cash flow to back it up. It has no intrinsic value. That’s why skeptics often say that bitcoin investors rely on “the greater fool theory,” which is the notion that an asset only increases in price if there is a “greater fool” willing to pay more for it.

Buying too much could be hazardous to your retirement

insta_photos/Adobe trader analyst looking at computer monitor

Before you do any investing, consider how much risk you’re willing to take on to make a profit. Typically, investments that have the potential for higher returns also are those that pose a higher risk. It is wise to look at your long-term financial goals and decide if taking that risk will pay off.

Bitcoin isn’t regulated

Семен Саливанчук/Adobe  seminar meeting room in business event

Bitcoin is a decentralized currency, meaning it isn’t regulated by the government or central bank. Crypto enthusiasts see the lack of government oversight as a good thing, because it means the government can’t get its hands on your coins.

However, it also leaves the door open for scams. Concerns over abuses in the cryptocurrency market are causing the U.S. government to take a closer look at possible rules and regulations.

Also, unlike the money you have in the bank — which the Federal Deposit Insurance Corporation protects — there are no protections for cryptocurrencies like bitcoin. Once it’s gone, it’s gone for good.

Case in point: Crypto investor James Howells lost what was at the time calculated to be more than $280 million in bitcoin when he accidentally threw away the hard drive that had the cryptographic key he needed to access his investment.

Bitcoin does sometimes generate high returns

luismolinero/Adobe Young Colombian girl over yellow wall taking a lot of money

Perhaps the biggest advantage of adding bitcoin to your portfolio is the potential for high returns on your investment.

Bitcoin’s value climbed from less than $1,000 in 2017 to more than $67,000 in November 2021, making many early investors rich. According to Forbes’ list of billionaires, there are 19 people who made their fortune investing in cryptocurrencies like bitcoin.

Bitcoin may offer versatility

suparat1983/Adobe Hand holding passport show immigration stamps on passport

If you travel to a different country, you have to exchange your U.S. dollars for the currency used in the country you’re visiting. But not with bitcoin. There are no borders with bitcoin. It can be easily transferred to someone else.

Two countries, El Salvador and the Central African Republic, already accept cryptocurrency as legal tender, and several other countries are considering following suit.

Bitcoin may provide diversification

piter2121/Adobe 401k Plan with calculator pen and glasses

Diversifying your portfolio can be a key to wise investing. If one of your investment streams is down, your portfolio won’t take a major hit because you have other investments to carry it.

Adding bitcoin to your 401(k) can diversify your portfolio.

Bottom line

24K-Production/Adobe Bitcoin bearish price crash

Many of us spend decades socking away some of our hard-earned money in a 401(k) with the hope of building a fat nest egg by the time we retire. The option to add bitcoin to your portfolio may or may not help you accumulate wealth.

Time will tell whether bitcoin turns out to be a wise investment. For now, look carefully before you leap and also start planning ahead for other ways you might supplement your Social Security income.

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Author Details

Danielle Letenyei

Danielle Letenyei is a professional writer living in Madison, Wisconsin. Her interests include budgeting, travel, credit cards, insurance, and creative side gigs. She hopes her work on these topics can help others navigate the intricate landscape of personal finance.