Another crypto issue: Is there really demand?

The big question now for cryptocurrency investing in defined contribution plans is how amenable sponsors, participants and consultants will be to accepting these offerings to augment retirement savings.

Even before Fidelity Investments announced a program that would let participants invest up to 20% of their 401(k) accounts in cryptocurrency, NEPC LLC detected a "meaningful increase from clients asking for education on crypto within 401(k) plans," William Ryan, Chicago-based partner and head of defined contribution plan solutions at the investment consultant, wrote in an email.

The increase in inquiries started this year. "Like with most new or innovative things within DC, we expect this investigation by our clients will last well over a year," Mr. Ryan said.

The interest is coming from all age groups, "but the biggest push is coming from participants under the age of 30," according to comments from clients, Mr. Ryan said. NEPC believes these younger participants hold over 30% of their assets outside of their DC plans in cryptocurrency, he added.

"We are telling our clients to be thoughtful in their due diligence of crypto by thinking about the full landscape," Mr. Ryan wrote. "Many publicly traded companies are currently either suppliers or users of crypto technology. For that reason, today's DC investment options already provide participants the ability to invest indirectly into crypto technology through those companies."

Meanwhile, several NEPC consultants are meeting with Fidelity representatives to learn more about the program, and one client has asked NEPC to help evaluate if the Fidelity cryptocurrency option is "prudent for their plan," Mr. Ryan added. He did not name the client.

At the moment, MicroStrategy Inc., Tysons Corner, Va., is Fidelity's only announced client for its crypto investing program for 401(k) accounts, set to launch later this year.

The MicroStrategy 401(k) Savings Plan, Vienna, Va., had $221 million in assets as of Dec. 31, 2020, according to its latest Form 5500.

Fidelity mentioned MicroStrategy in its April 26 news release about its crypto investing program for 401(k) sponsors. MicroStrategy CEO Michael Saylor tweeted confirmation of its decision. A company representative didn't respond to requests for comment.

David O'Meara, New York-based director of investments for Willis Towers Watson PLC, said his firm didn't get many crypto questions from clients prior to the Fidelity announcement. Crypto inquiries were "few and far between" until then, but it is "hard to quantify" the recent responses, he said.

"We haven't had any serious discussions with clients who really want to include" cryptocurrencies in their DC plans, Mr. O'Meara said.

"Today, people are not clamoring" for cryptocurrencies as retirement plan investments, said Paul Hamburger, a Washington-based partner at the law firm Proskauer Rose LLP. "We're at the very beginning stage of something that will change in five to 10 years."

The Fidelity announcement was "one more step in the process of opening the door" to cryptocurrency in retirement plans, said Mr. Hamburger, co-chairman of the firm's employee benefits and executive compensation group.

Prior to Fidelity's announcement, the Plan Sponsor Council of America found little interest based on a snapshot survey of 63 DC executives published a week after the DOL issued its March 10 guidance telling fiduciaries to "exercise extreme care" about cryptocurrency investing in 401(k) plans.

Only 1.6% of respondents said they were considering crypto and will continue to do so with the DOL comments in mind. Another 1.6% said they were considering crypto but will now defer that consideration. However, 57.1% said they would never consider it and 33.3% said the DOL's warning confirmed the concerns they already had.

A week before the DOL issued its guidance, the National Association of Plan Advisors announced the results of a reader poll in which 88% of the 223 respondents said recommending cryptocurrency as a stand-alone investment option was "not on my 'to do' list." Eleven percent of respondents for the March 4 informal poll of said they were thinking about recommending this investment to clients while 1% said they were planning to recommend it.

Fidelity's news release about its crypto program cited a 2021 company survey that found that 30% of U.S. institutional investors would prefer to buy an investment option containing digital assets. That survey was conducted between Dec. 2, 2020, and April 2, 2021, with 1,100 interviews among investment professionals in the U.S., Asia and Europe.

Respondents to the Fidelity survey were high-net-worth individuals, financial advisers, family offices, crypto hedge and venture funds, traditional hedge funds, endowments and foundations, pension funds and defined benefit plans. The survey didn't interview defined contribution plan officials.