fidelity investments’ recently announced bitcoin 401k plan couldn’t have come at a worse time the digital currency touted as a store of value and an inflation hedge was crushed in the market rout and now stands below 30000 after starting the year above 47000 however crypto experts say the timing of the launch is the least of their concerns they say the biggest problems they see with fidelity’s bitcoin 401k plan lies in two of its key attributes—it offers exposure only to bitcoin and it allows investors to allocate up to 20 of their accounts to the digital currency retirement and crypto investment experts say both these features are at odds with the fundamentals of investing alternative assets such as bitcoin being no exception for its part fidelity has said it sees the bitcoin product as just the start aiming to expand to other digital assets here is what investment pros have to say about these aspects of fidelity’s plan few would disagree that cryptocurrency and blockchain have the potential to be a transformative technology various digital currencies—including bitcoin ethereum solana polkadot and others—are creating opportunities for technological innovation with many potential applications however the lack of diversification in fidelity’s plan defies the purported diversification benefit of cryptocurrencies a crypto portfolio that is 100 bitcoin or 100 ethereum or even a mix of the two isn’t ideal says matt hougan chief investment officer at bitwise asset management rather than choosing particular digital assets he advises the “best approach for most investors looking to make a longterm allocation to crypto is to own a diversified regularly rebalanced index that will adapt with the evolving market” david ramirez chief investment officer at 401k provider forusall says diversification is critical to an appropriately balanced retirement portfolio “recognizing that the industry is still developing we feel it is important to allow participants to invest in a range of cryptocurrencies” he says pointing out that forusall provides access to a diverse selection of institutionally adopted cryptocurrencies beyond the singular crypto option fidelity would offer in its plan the company’s 20 limit on bitcoin holdings for its 401k customers appears to exceed levels crypto experts say is reasonable indeed most financial advisors would be wary of allocating a large portion of their clients’ retirement savings to any financial instrument with such a risk profile as crypto “in the case of a 401k plan where the employer has fiduciary responsibilities to the plan participants 20 is quite high for most investors” says adam bergman founder and ceo of ira financial group a retirement plan custodian that allows clients to invest in a range of digital currencies that’s not to say he doesn’t believe 401k and other retirement savers shouldn’t seek exposure to cryptos bergman says that every retirement account holder should own crypto even if it is worth just 100 “i believe the reward of gaining exposure to an emerging asset far outweighs the risks” he says “the question is just how much exposure a retirement investor should have” for most retirement savers he adds that threshold should be between 1 and 5 that is backed up by historical data according to hougan “when you hold more than 5 crypto in a portfolio it becomes the primary driver of maximum drawdowns in the portfolio and introduces significant behavioral risks” he says at forusall which was the first platform to offer a crypto option in its 401k plans participants default to an allocation of up to 5 while ramirez doesn’t see anything inherently wrong with a higher cap “we recognize that fiduciaries may have a wide range of views about cryptocurrencies…and a modest allocation cap of 5 helps limit risk exposure for participants” forusall account holders are offered the opportunity to rebalance crypto into more traditional funds to keep the crypto allocation within the threshold ramirez says fidelity isn’t new to the world of crypto and blockchain in 2020 for example it rolled out a private bitcoinonly fund available to accredited investors with a 100000 minimum investment requirement whether fidelity’s plan to allow potentially large bitcoin investments in all accounts is sound the move reflects the reality that 401k investors want crypto access and that the demand from plan sponsors is real “long term employers will demand that their 401k plans offer exposure to crypto because employees will want it” says hougan for the short term however regulatory pushback is why bergman believes employers may not be so quick to jump on the 401kcrypto bandwagon the labor department in a march 10 release about crypto options in 401k plans said “in this early stage in the history of cryptocurrencies the department has serious concerns about the prudence of a fiduciary’s decision to expose a 401k plan’s participants to direct investments in cryptocurrencies or other products whose value is tied to cryptocurrencies” “i do not believe many major financial institutions and brokerage firms will provide for cryptos as investment options for their 401k plan clients” says bergman who adds that sentiment could change if the price of cryptos rebounds and demand for access to cryptos soars again