Could Fidelity Investments reconsider its exposure to Bitcoin (BTC) following the collapse of FTX?


Elizabeth Warren. Source: video capture, Bloomberg Politics / YouTube

Three US senators suggested the asset manager Fidelity Investments to reconsider the exposure of its pension plans to Bitcoin (BTC).

In a letter, Democratic senators Richard Durbin, Elizabeth Warren and Tina Smith strongly recommended to Abigail JohnsonCEO of the company, to reconsider its decision to add Bitcoin in the assets that can be used to build a 401(k) savings plan.

401(k) plans are employer-sponsored defined contribution retirement accounts, and Fidelity Investments is the largest player in this sector in the United States.

The trio argue that the events that have occurred since their previous letter sent in July prove that,

“The digital asset industry has become more volatile, tumultuous and chaotic – all characteristics of an asset class that no pension plan administrator or person saving for retirement should want to approach.”

The senators used the example of the fall of the exchange FTX as a scandal they say cannot be ignored and which has made it “quite clear” that this industry faces “serious problems.”

The aftermath of the exchange’s failure continues to ripple through the industry, and while the full extent of the damage caused by FTX is difficult to determine, it is undeniable that it has affected the price of BTC, said the senators.

The letter states that,

“The crypto industry is full of charismatic prodigies, opportunistic fraudsters and self-proclaimed investment advisers who promote financial products with little or no transparency. Therefore, the misguided, deceptive and potentially illegal actions of a few have a direct impact on the valuation of Bitcoin and other digital assets.”

Fidelity is responsible for employer-sponsored retirement savings plans for more than 32 million Americans and 22,000 employers, they added.

Therefore, the authors of the letter concluded,

“In many ways, we are already going through a pension security crisis, and it would be desirable not to make it worse by exposing retirement savings to unnecessary risk. Any investment strategy based on risk-taking disproportionate or driven by FOMO (fear of missing out) is doomed to fail.”

As reported in April this year, Fidelity, which manages $4.5 trillion in assets, said it would let participants choose to keep their money in bitcoins – if their employers allow them to. The company explained that this “new exclusive offer” dubbed Digital Assets Account could “enable employees to invest in digital assets, particularly Bitcoin.”

The choice of Fidelity Investments, well before the collapses of Terra and FTX, had come up against the skepticism of regulators: according to the New York Times, in March, the US Department of Laborwhich governs the space, “said it would take a hard look at retirement plans that add digital assets to their investments.”

Shortly after, Ali KhawarActing Assistant Secretary of theEmployee Benefits Security Administration at the Department of Labor, had raised “concerns about Fidelity’s decision” because of the risks posed to Americans’ retirement security. He said crypto has some intriguing use cases, but needs “maturation” before people can put their savings into it. Mr Khawar added that he and his colleagues had planned to speak with Fidelity to address those concerns.

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