Fidelity Investments: Buying Bitcoin And Crypto Explained

As one of the largest asset managers and brokerages in the U.S., Fidelity has become a popular choice for investors interested in buying Bitcoin. The company launched its initial venture into the cryptocurrency markets in 2018 with the introduction of Fidelity Digital Assets, a branch dedicated to providing institutional customers with access to the growing cryptocurrency investing environment. Since then, Fidelity has continued to expand its offerings in the crypto space, including the launch of the Fidelity Crypto platform, which allows users to buy and sell Bitcoin and other cryptocurrencies. However, it's important to note that investing in cryptocurrencies carries a high level of risk due to its volatile nature, and investors should carefully consider their risk tolerance before making any investment decisions.

Buying Bitcoin through Fidelity: pros and cons

Fidelity is one of the largest asset managers and brokerages in the US. In 2018, it launched its first crypto service: Fidelity Digital Assets, an institutional custody and trading platform for digital assets. Since then, it has continued to research and innovate new solutions for institutional and accredited investors.

Pros

Fidelity Crypto is offered by Fidelity Digital Assets and has the following benefits:

• It is built into the award-winning Fidelity mobile app, so you can manage all your investments in one place.
• It offers institution-level security and services.
• It has no minimum deposit to open a crypto trading account, and the minimum crypto purchase is just $1.
• It offers "commission-free" crypto trading with a spread of up to 1% on crypto trades, which is relatively good compared to other crypto services.
• It provides educational content to help investors make informed decisions.
• It has a dedicated team that develops investing products focused on digital assets.
• It was the first brokerage to offer exposure to cryptocurrency in retirement accounts.
• It manages the Fidelity Wise Origin Bitcoin Fund, an ETF approved by the SEC.

Cons

• It is only available to US citizens over the age of 18, and only in certain states.
• It offers only two cryptocurrencies: Bitcoin and Ethereum.
• Users cannot send or receive cryptocurrency from their accounts, limiting its functionality for those who want to use crypto for payments or access blockchain-based services.
• It does not offer staking, a process that allows owners of some cryptocurrencies to earn rewards.
• Trading is limited to 4 am to 12 am Eastern Time.
• It is not suitable for hardcore or serious crypto investors due to its limited offerings.

How to buy Bitcoin through Fidelity

Yes, you can buy Bitcoin through Fidelity. Here is a step-by-step guide on how to do it:

Step 1: Open a Fidelity Crypto® Account

You can open a Fidelity Crypto account if you are a US citizen over the age of 18 and reside in a state where Fidelity Digital Assets℠ can serve customers. You can check if your state is eligible on the Fidelity website.

Step 2: Open a Fidelity Brokerage Account

At the same time as opening your Fidelity Crypto account, you will also need to open a Fidelity brokerage account if you don't already have one. This will be used to fund your crypto account.

Step 3: Place Your Order

Decide how much crypto you want to buy or sell, and place your order as a market or limit order. You can start investing with as little as $1, and trade crypto 7 days a week, 23 hours a day, on the website or mobile app.

Things to Keep in Mind:

• Tax advantages: Some users have pointed out that buying Bitcoin through a Roth IRA account can have tax advantages, as you can make tax-free withdrawals on any earnings after age 59 if you've held the account for at least 5 years.
• Security: Fidelity offers institution-level security and reliable support. However, it is important to note that direct investments in crypto are not insured by the Federal Deposit Insurance Corporation or the Securities Investor Protection Corporation, so only invest with an amount you are willing to lose.
• Limited cryptocurrencies: Currently, you can only trade Bitcoin and Ethereum on Fidelity Crypto.
• No transfers: You cannot transfer cryptocurrency out of your Fidelity account or to external crypto wallets.
• Trading hours: Trading on Fidelity Crypto is limited to 4 am to 12 am Eastern time.
• Fees: While Fidelity describes its crypto trading as "commission-free", the company does take a spread of up to 1% on crypto trades.

Other Ways to Invest in Crypto:

If you are looking for other ways to gain exposure to crypto, you can consider buying crypto ETPs or crypto-related ETFs, or buying crypto stocks. These options can provide more flexibility and diversity to your investment portfolio. However, they also come with their own set of risks and considerations.

The future of Bitcoin and other cryptocurrencies

Since its creation in 2009, Bitcoin has grown from a digital novelty to a trillion-dollar technology with the potential to disrupt the global financial system. Cryptocurrencies, in general, have exploded in popularity and are collectively worth more than $1 trillion. This has created new challenges for governments and central banks, with critics arguing that a lack of oversight has contributed to volatility in the industry.

Despite the criticism, cryptocurrencies have several benefits. They are decentralised, allowing for quick and anonymous transactions without the need for a bank. This has made them a useful tool for dissidents in authoritarian countries to circumvent state controls. Cryptocurrencies are also seen as a democratising force, taking the power of money creation and control away from central banks and Wall Street.

However, one of the main drawbacks of cryptocurrencies is their high volatility. The price of Bitcoin and other cryptocurrencies can fluctuate wildly, which some analysts say limits their usefulness as a means of transaction. The energy-intensive process of mining Bitcoin has also sparked fears about its contribution to climate change.

Another concern is the lack of regulation in the industry, which has led to concerns about fraud, tax evasion, and cybersecurity. If left unregulated, cryptocurrencies could limit the ability of central banks to set monetary policy through control of the money supply. Governments have begun to craft rules for the emerging sector, but regulations vary widely around the world, with some embracing cryptocurrencies and others banning them outright.

In the United States, the Securities and Exchange Commission (SEC) approved the first set of exchange-traded funds (ETFs) that include Bitcoin in January 2024, marking a step towards greater regulation. However, there is still ambiguity in how cryptocurrencies fit into the existing regulatory framework, and lawmakers will likely need to resolve this.

It remains to be seen whether cryptocurrencies will become a mainstream form of payment or remain a highly volatile and speculative investment.

Bitcoin and taxes

Yes, you can buy Bitcoin through Fidelity Crypto, a service offered by Fidelity Digital Assets. You can trade and secure Bitcoin and Ethereum for as little as $1.

Now, here's a detailed overview of Bitcoin and taxes:

Bitcoin and other cryptocurrencies are subject to taxes, and these vary depending on the jurisdiction. In the United States, the Internal Revenue Service (IRS) treats cryptocurrencies as property, meaning sales are subject to capital gains tax rules. This means that when you sell or dispose of a cryptocurrency like Bitcoin, you may be liable to pay capital gains tax on any profits you make.

The amount of tax you pay depends on whether your capital gains are short-term or long-term. Short-term capital gains are for assets held for one year or less, while long-term capital gains are for assets held for more than a year. Long-term capital gains are taxed more favourably than short-term gains.

It's important to note that buying something with Bitcoin is also considered a taxable event because you're effectively selling a portion of your holdings. The difference between the fair market value of the goods or services you receive and your adjusted cost basis (the amount you paid for the cryptocurrency plus any fees) determines whether the transaction results in a gain or loss.

To calculate your capital gains or losses, you need to keep records of your cryptocurrency transactions, including the date, time, and amount of each transaction, as well as the fair market value at the time of the transaction.

Additionally, it's your responsibility to report all transactions to the IRS, as you won't receive a Form 1099 from the currency exchange. Failing to report income or underreporting it could lead to penalties and be considered tax evasion.

If you're unsure about how to report transactions properly, it's best to consult a tax advisor or accountant. They can help you navigate the complex world of cryptocurrency taxes and ensure you're compliant with the regulations in your jurisdiction.

Bitcoin and retirement accounts

Bitcoin and other cryptocurrencies have emerged as a mainstream asset class with a multi-trillion-dollar market capitalization. As a result, many people, especially younger generations, are exploring ways to invest in crypto for their retirement.

Bitcoin IRAs

Bitcoin IRAs can diversify your retirement portfolio and eliminate capital gains taxes. However, because Bitcoin is a digital rather than tangible asset, cryptocurrency IRAs require specialized management, greater protection of sensitive data, and deep expertise in cryptocurrency trading.

The best Bitcoin IRA companies have a strong track record and offer transparent fee structures, low costs, and robust security measures. Additionally, partnerships with reputable custodians and insurers add an extra layer of protection.

• ITrustCapital: Best Rates and Fees
• Bitcoin IRA: Best Digital Asset Insurance
• BitIRA: Best for Security
• Equity Trust: Best for Self-Directed Investments
• Coin IRA: Best Investor Experience

Buying Bitcoin Through Fidelity Investments

Fidelity is one of the largest asset managers and brokerages in the U.S. In 2018, Fidelity launched Fidelity Digital Assets, a limited liability corporation designed to serve institutional customers and allow them access to the growing cryptocurrency investing environment.

Fidelity offers crypto trading through its Fidelity Crypto accounts, where you can buy and sell bitcoin and ether "commission-free" (fees are charged using a spread system). It also has exchange-traded funds that offer exposure to companies involved in the cryptocurrency and digital payments spaces.

In April 2022, Fidelity became the first brokerage to offer exposure to cryptocurrency in retirement accounts when it announced it was pioneering crypto-enhanced 401(k)s for interested employers and their employees. These accounts offer exposure to Bitcoin and use the custodianship and clearing and settlement services it created for institutional investors.

Risks of Mixing Crypto and Retirement Savings

Despite the growing interest in cryptocurrencies for retirement savings, some financial experts advise caution. Cryptocurrencies are still relatively new, largely unregulated, and very volatile, which isn't ideal for a traditional long-term portfolio.

Additionally, cryptocurrencies are not backed by any fiat currency or government, and they are subject to ordinary income taxes upon withdrawal from a traditional 401(k) or IRA. In contrast, crypto held in a taxable account for longer than a year would be subject to the more favourable long-term capital gains rates.

Furthermore, losses in crypto held in retirement accounts cannot be used to offset realized gains or income, unlike in a taxable account. Given the volatile nature of cryptocurrencies, losses are likely to occur, and being able to use them to offset gains can be advantageous.

Therefore, while you can invest your retirement savings in Bitcoin through certain platforms, it is essential to carefully consider the risks and volatility of the cryptocurrency market before doing so.

Frequently asked questions