Sen. Warren Presses Fidelity on Bitcoin 401(k) Move

Warren and Smith said they were also concerned about Fidelity’s “potential conflicts of interest” and the extent to which they may have affected the decision to offer Bitcoin.

“In 2017, you announced that Fidelity had been mining cryptocurrency, stating ‘We set up a small Bitcoin and Ethereum mining operation … that miraculously now is actually making a lot of money,’” they wrote.

Following this announcement, Warren and Smith continued, “Fidelity expanded its crypto activities, ‘add[ing] a link on retail customers’ accounts to Coinbase, the crypto exchange, to track their holdings’ and ‘open[ing] its own crypto fund for wealthy customers.’”

Now, Warren and Smith continued, “Fidelity has become ‘the first to offer employers exposure to Bitcoin for the core lineup of 401(k)s.’”

Said Warren and Smith: “Despite a lack of demand for this option — only 2% of employers expressed interest in adding cryptocurrency to their 401(k) menu — Fidelity has decided to move full speed ahead with supporting Bitcoin investments.”

A Fidelity spokesperson told ThinkAdvisor late Thursday in an email that “as a Massachusetts-based company with a proven 75-plus-year history of doing what’s in the best interest of our customers, we look forward to continuing our respectful dialogue with policymakers to responsibly provide access with all appropriate consumer protections and educational guidance for plan sponsors as they consider offering this innovative product. Consistent with our ongoing dialogue with regulators and policymakers, we will respond directly.”

To better understand Fidelity’s move, Warren and Smith asked Johnson to answer the following questions by May 18:

• Why did Fidelity ignore the Department of Labor’s “serious concerns regarding the prudence of a fiduciary’s decision to expose a 401(k) plan’s participants to direct investments in cryptocurrencies”?
• What risks does Fidelity assess that Bitcoin presents to its customers?
• What fees will customers incur if they decide to invest in Bitcoin?
• How much has Fidelity earned from cryptomining activities since the establishment of its mining operation?
• When Fidelity made its decision to allow sales of Bitcoin in retirement accounts, how did the company address its own conflicts of interest, given that the company is now both a Bitcoin miner and a purveyor of Bitcoin?