Fidelity CEO bullish on crypto despite scrutiny, price drop

Fidelity Investments Chairwoman and CEO Abby Johnson sees cryptocurrency becoming an essential part of the money manager's future.

Ms. Johnson talked about Fidelity's cryptocurrency journey, regulation and hesitancy among financial institutions at the Consensus 2022 cryptocurrency conference in Austin, Texas, on June 9.

Since then, the price of cryptocurrencies has continued to plummet, with bitcoin falling below $21,000 as of June 17, down more than 30% since Ms. Johnson spoke and down 55% in 2022.

Fidelity made headlines in April when it announced that it would offer 401(k) plan participants the opportunity to invest in cryptocurrencies. It will allow up to 20% of a participant's retirement account be invested in bitcoin.

"I would have never thought that we would have gotten so much attention for bringing a little bit of bitcoin to a little bit of the 401(k) business," Ms. Johnson said. She repeatedly emphasized Fidelity's "customer-centric" nature, and explained how it is working to meet the needs of its customers that want cryptocurrency as an option.

Now, the chairman of the House Ways and Means Committee would like the Government Accountability Office to study cryptocurrency investment options in defined contribution plans.

Chairman Richard Neal, D-Mass., sent a letter June 15 to GAO Comptroller General Gene L. Dodaro in which he expressed concern over DC plans offering cryptocurrency options to participants.

Fidelity's move has elicited trepidation from the Department of Labor, which in March issued guidance for 401(k) plan fiduciaries that told them to "exercise extreme care" before selecting cryptocurrency as an investment option in plan menus.

"Recent announcements from major DC plan providers indicate that many employers who sponsor DC plans will have the option to allow their employees to invest in cryptocurrencies," Mr. Neal said in his letter. "However, concerns have arisen about the risks to older Americans' retirement security of using retirement accounts to invest in cryptocurrencies due to their volatility and limited oversight."

Mr. Neal asked the GAO to:

• Determine the extent to which investment options for cryptocurrency are being offered by firms with a listing of the types of firms, for instance by size, offering the options and the extent to which the investment options for cryptocurrency are being utilized by sponsors of 401(k) plans.
• Describe how DC plans administer cryptocurrency investment options, such as determining their valuation, the types and levels of fees associated with them, and safeguards, if any, that plan fiduciaries report using to maintain their fiduciary obligations to participants and beneficiaries.
• Assess the oversight of cryptocurrency investment options in 401(k) plans by the relevant agencies, and guidance federal agencies provide to plan sponsors, participants, and beneficiaries about investing in cryptocurrency and examine the current restrictions, if any, on investments in cryptocurrency in 401(k) plans.

Broadly, Republicans on Capitol Hill are more open to cryptocurrency options in retirement plans. Sen. Tommy Tuberville, R-Ala., introduced a bill in May that would bar the Labor Department from issuing a regulation or guidance that limits the type of investments 401(k) plan participants can choose through a brokerage window.

Speaking at the Austin conference, Ms. Johnson described DOL provisions as "wise," but also noted that the lack of clear regulations leads investors and institutions to be uncomfortable with crypto.

"It's becoming a little more accepted now, but a lot of people are still very confused, and you kind of can't blame them because financial services is a super highly regulated business. … There's no rule framework, things aren't really sure. It makes it makes people feel uncomfortable."

Despite this, she remains hopeful, as "seeing some of the regulators try to lean into this is very encouraging and exciting for us because if they don't give us a route to make some of these connections, then it makes it really hard for us on the ground."

Ms. Johnson believes crypto is an essential part of Fidelity's future success, even if institutional and federal adoption hasn't moved as quickly as she hoped. "What made us successful in the past is not what's going to make us successful again in the future. The world just doesn't work that way. I mean, even in the slow moving, lumbering, regulated financial services business."

The recent crash of the Terra stablecoin and current "crypto winter" present a buying opportunity, she said. "I have this knee-jerk reaction that if you believe that the fundamentals of a long-term case are really strong, when everybody else is dipping, that's the time to double down. ... And that's usually the right move."

Fidelity declined to comment on the continued drop in the price of cryptocurrencies since Ms. Johnson spoke.