Cryptocurrencies in 401(k) Plans

By Bolton April 28th, 2022

Cryptocurrencies, among the world’s most volatile assets, are searching for mainstream acceptance in the investment world. Fidelity Investments said on Tuesday, April 26, 2022, it will allow individuals to allocate part of their retirement savings in bitcoin through their 401(k) investment plans, becoming the first major retirement plan provider to do so. Fidelity stated that employees will be able to invest in bitcoin through a Digital Assets Account (“DAA”) within the core lineup of their 401(k) plans. Under the plan, Fidelity would let plan participants allocate as much as 20% of their savings to bitcoin, though that threshold could be lowered by plan sponsors.

In a defined contribution plan, such as a 401(k) plan, the value of a participant's retirement account depends on the investment performance of the employee's and employer's contributions. When defined contribution plans offer a menu of investment options to plan participants, the responsible fiduciaries have an obligation to ensure the prudence of the options on an ongoing basis. Fiduciaries may not shift responsibility to plan participants to identify and avoid imprudent investment options, but rather must evaluate the designated investment alternatives made available to participants and take appropriate measures to ensure that they are prudent. As the Supreme Court recently explained, "even in a defined-contribution plan where participants choose their investments, plan fiduciaries are required to conduct their own independent evaluation to determine which investments may be prudently included in the plan's menu of options."(1) The failure to remove imprudent investment options is a breach of duty ^i. Adding digital currencies to retirement accounts entails plenty of risks for the average investor, including high fees and high volatility.

Cryptocurrencies can present serious risks to retirement savings, including:

  • Valuation concerns. Financial experts have fundamental disagreements and concerns about how to value cryptocurrencies. These concerns are compounded by the fact that cryptocurrencies are not typically subject to the same reporting and data integrity requirements that apply to more traditional investment products. Scammers have used misleading information to inflate the price of cryptocurrencies, and then sold their own holdings for a profit before the value of the currency drops.
  • Obstacles to making informed decisions. These investments can easily attract investments from inexperienced plan participants with expectations of high returns and little appreciation of the risks the investments pose. It can be very hard for ordinary investors to separate fact from hype. When fiduciaries include a cryptocurrency option on a 401(k) plan menu, it signals to participants that knowledgeable investment experts have approved it as a prudent option. This can mislead participants about the risks and cause big losses.
  • Prices can change quickly and dramatically. Cryptocurrencies’ prices have been extremely volatile. For example, in just one day last December, the price of bitcoin dropped by more than 17 percent. These large swings can leave participants vulnerable to significant losses.
  • Evolving regulatory landscape. Laws and rules are swiftly evolving. For example, the president’s recent executive order directs federal agencies to study risks and policy approaches to digital assets, including cryptocurrency. Changes in the United States and globally may impact existing regulatory frameworks ^ii.

For more information on this topic, please reach out to a Bolton consultant.


  1. Hughes v. Northwestern University, 142 S.Ct. 737, 742 (2022).


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