Fidelity's Bitcoin Investment Options: What You Need To Know

Bitcoin's popularity as an investment vehicle has been growing, but not everyone is convinced it's a good investment. While Tesla held nearly $2 billion in bitcoin in 2021, Warren Buffett has repeatedly questioned its value. So, can you invest in Bitcoin on Fidelity? Yes, you can invest in Bitcoin directly through Fidelity Crypto, as well as access investment opportunities in crypto-related ETFs, Trusts, and stocks of crypto companies. However, due to its higher fees, investors seeking a broader range of cryptocurrencies and more competitive fees might prefer an alternative platform. In April 2022, Fidelity announced plans to offer Bitcoin in 401(k) plans, but this is still pending approval by the Department of Labor.

Can I buy Bitcoin directly with Fidelity?

Yes, you can buy Bitcoin directly through Fidelity Crypto, a service by Fidelity Digital Assets. However, this service is only available to institutional investors, not retail investors. Retail investors can, however, track their Bitcoin purchased via Coinbase using Fidelity's Portfolio Summary View.

Fidelity Crypto enables individual investors to purchase, sell, and hold Bitcoin securely. The platform integrates both traditional and crypto investments into a single user-friendly interface. It also offers educational resources to help users understand the complex world of cryptocurrencies.

Fidelity's investment in blockchain and digital assets makes the firm unique among its institutional peers as a leader of this technological revolution. It even has an entire department, Fidelity Digital Assets, dedicated to providing institutional-grade digital asset solutions.

In April 2022, Fidelity announced plans to begin offering Bitcoin in 401(k) plans, making it the first major firm to do so. This would allow individuals to start investing in Bitcoin if their employers allow it in their plans. However, as of May 2022, this offering is still pending approval by the Department of Labor, which has expressed serious concerns about the high risks of crypto in retirement plans.

What is the Wise Origin Bitcoin Index Fund?

The Wise Origin Bitcoin Index Fund is a bitcoin fund launched by Fidelity, allowing high net worth individuals to gain exposure to bitcoin without purchasing the digital asset directly. The fund is managed through a new business called Fidelity Digital Funds and is made available to family offices, registered investment advisors, and other financial institutions with a minimum $100,000 investment. The Wise Origin Bitcoin Index Fund is one of the largest of its kind, with only Pantera, Galaxy and NYDIG reporting more than $100 million in sales for a bitcoin-only fund.

What are the fees for Bitcoin-eligible accounts?

Fees for Bitcoin-eligible accounts on Fidelity are expected to range between 0.75% and 0.90% of assets, with the exact amount depending on the amount invested and the employer. This account fee will cover the cost of custody, trade execution, dedicated digital asset support, and market research. In addition, per-trade fees and other additional fees will also be charged.

Fidelity's direct investment platform, Fidelity Crypto, charges a mandatory minimum fee of 1% within the spread for transactions. This is in line with the fees charged by other direct investment platforms, such as Coinbase, which often have fees above 2%.

For investors looking for a broader selection of cryptocurrencies and more competitive fees, Kraken is a popular alternative to Fidelity. With trading fees starting at just 0.16%, Kraken offers a wider range of over 200 crypto assets and is a secure and efficient platform that adheres to FinCEN regulations.

Can I rollover my Fidelity 401(k) to Bitcoin?

Fidelity is a giant in the retirement business, with more than 45 million individual retirement accounts. In early 2022, Fidelity became the first major financial services firm to offer investors the chance to add crypto assets to their 401(k) retirement accounts.

However, it is important to note that retail investors cannot invest in or trade Bitcoin using their Fidelity account. Only institutional investors can transact in the Bitcoin market using Fidelity Digital Assets.

Fidelity has plans to add Bitcoin as an investment option in their 401(k)s, but as of May 2022, it is pending approval by the Department of Labor. This means that, currently, you cannot rollover your Fidelity 401(k) to Bitcoin.

If you want to rollover your 401(k) to Bitcoin, you will need to first move your 401(k) to a self-directed Digital IRA, which allows you to invest in a broader range of assets, including Bitcoin.

How to rollover your 401(k) to a Bitcoin IRA:

First, you will need to open and fund a self-directed Digital IRA with a qualified custodian. Then, you will need to set up and fund your account, and receive credentials to trade your new digital currency assets. Finally, you will need to store your Bitcoin in a digital or Bitcoin wallet.

It is important to note that most 401(k) programs don't allow the direct purchase of digital currency, so you will need to use a self-directed Digital IRA to invest in Bitcoin. Additionally, there are eligibility requirements that must be met in order to rollover your 401(k) to a Bitcoin IRA, such as being a full-time employee from a previous employer or being over the age of 59.5 years old.

Benefits of rolling over your 401(k) to a Bitcoin IRA:

• You can leverage tax-deferred personal property status by investing 401(k) savings in a Bitcoin IRA.
• You can diversify your retirement plan by rolling part of it into a Bitcoin IRA, as cryptocurrencies are a new asset class.
• You can take control of the funds in your old 401(k) and protect them from inflation, as Bitcoin has a limited supply.
• You can hedge against a "stock bubble" that could turn your retirement plan into rubble.

What are the risks of investing in Bitcoin?

Investing in Bitcoin and other cryptocurrencies carries several risks that you should be aware of. Here are some of the key risks associated with investing in Bitcoin:

Volatile and Fluctuating Market

The price of Bitcoin is highly volatile and subject to significant fluctuations. Its value has seen wild price swings over its short existence, and there is no guarantee of a return on investment. For example, on November 6, 2018, one Bitcoin was worth $6,461.01, but just over a year later, on December 17, 2017, the price topped $20,000. Days later, on the 24th, buyers could not sell their investment for more than $14,626. To avoid massive losses, investors are advised to make small investments and keep a vigilant eye on the market.

Cyber Attacks and Fraud

As a technology-based currency, Bitcoin investments are susceptible to cyberattacks and hacking. There is currently no way to retrieve lost or stolen Bitcoins, and many buyers have lost their investments through exchanges and mining losses. Additionally, the Bitcoin market also faces fraud issues, with fake exchanges duping unsuspecting investors out of their Bitcoins.

Limited Regulation and Security

The Bitcoin market currently operates with little to no major regulations, as it is a relatively new concept for governments and regulators. The lack of taxation and regulation can make it an enticing investment opportunity, but it also creates uncertainty and potential competition for government-issued currencies. The lack of regulation also contributes to the security risks mentioned above.

Technology Reliance and System Failure

As a digital currency, Bitcoin is entirely reliant on technology. It is mined, exchanged, and stored digitally, with no physical collateral backing it up. This makes Bitcoin owners more vulnerable to cyber threats and system failures, which could result in the loss of their investments.

Limited Acceptance and Potential Bubble Economy

Despite its popularity, Bitcoin is not widely accepted as a legitimate form of currency. Only a few companies and merchants accept Bitcoin as a means of payment, and it faces pushback from traditional financial institutions. Additionally, Bitcoin has been criticised as a potential Ponzi scheme or bubble economy, where a sudden loss of confidence could lead to a crash and render Bitcoin useless.

In summary, investing in Bitcoin carries several risks, including market volatility, cyber threats, limited regulation, technology reliance, and limited acceptance. Investors should carefully consider these risks and take a cautious approach, making small investments, and conducting thorough research before entering this new and evolving market.

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