FTX collapse continues to harm digital assets, US senators calls on Fidelity

    Tanya Sharma
    Tanya Sharma
    Published on November 23, 2022 2:50 PM

    Updated on January 10, 2023 2:20 PM

    The senators continued by saying that Fidelity shouldn't be subjecting its customers' retirement savings to an "unnecessary risk" given the nation's current retirement security crisis.
    FTX collapse continues to harm digital assets, US senators calls on Fidelity
    Source: CNBC

    Senator's Financial Freedom Act would ensure Bitcoin in a retirement plan

    The Financial Freedom Act, a new bill introduced by Republican Senator Tommy Tuberville of Alabama, would free Americans from regulatory restrictions to add cryptocurrency to their 401(k) retirement savings plans.

    The new bill is Tuberville's answer to the U.S. Department of Labor's (DOL) push to prevent cryptocurrency from being included in 401(k) investment plans because of its alleged risk to investors.

    According to the DOL, employees who decide to invest in cryptocurrencies through their 401(k)s may come under legal scrutiny.

    Democratic Senators raise the possibility of a conflict of interest 

    On April 26, investment management company Fidelity Investments announced that it would enable clients to add Bitcoin to their 401(k) accounts.

    Due to this, Democratic Senators Tim Smith and Elizabeth Warren wrote to Fidelity CEO Abigail Johnson to raise the possibility of a conflict of interest since the company has been working with cryptocurrency products since 2017.

    Additionally, they stated that investing in cryptocurrencies has "high risks of fraud, theft, and loss."

    Fidelity investments CEO advised rethinking its investment

    Senators Tina Smith, Elizabeth Warren, and Richard Durbin have reaffirmed their requests that Fidelity Investments reconsider providing a 401(k) retirement package connected to Bitcoin (BTC).

    The three senators urged the $4.5 trillion asset management company to rethink its Bitcoin offering to retirement investors in a letter sent to Fidelity Investments CEO Abigail Johnson on November 21. They stated:

    "The recent collapse of the cryptocurrency exchange FTX has amply demonstrated the major issues the digital asset market is facing."

    Frauds have played the price of Bitcoin

    A significant part in manipulating the price of Bitcoin has been played by "charismatic wunderkinds, opportunistic crooks, and self-proclaimed investment advisors," the senators continued.

    This has subsequently affected people who have 401(k) retirement savings and invested in Fidelity's Bitcoin product:

    "Since we previously expressed our worries to you in July about the grave possibility of exposing employer retirement plans to Bitcoin, its value has fallen."

    FTX's impacts larger digital asset market

    "Although the entire degree of the harm done by FTX is still being determined, the contagion is already being felt in the larger digital asset market. Bitcoin is no different, the senators said.

    The second letter the senators have sent to the CEO of Fidelity in recent months, following one on July 26, demanded an explanation of Fidelity's decision to initially expose its consumers to a Bitcoin 401(k) program.

    The digital asset market, the senators wrote, "has only grown more unpredictable, disruptive, and chaotic since our previous letter—all features of an asset class no plan sponsor or person saving for retirement should want to go anywhere near."

    32 million Americans are in an "unnecessary danger"

    Approximately 32 million Americans and 22,000 U.S. organizations utilize Fidelity as a workplace retirement account and an employer-sponsored plan, according to Durbin, Smith, and Warren.

    The senators continued by saying that Fidelity shouldn't be subjecting its customers' retirement assets to an "unnecessary danger" given the nation's current retirement security dilemma.

    "We again strongly urge Fidelity Investments to consider seriously reconsidering its decision to permit plan sponsors to provide plan participants with exposure to Bitcoin in light of these dangers and persistent warning indicators."

    Not all American lawmakers agreed with the skeptical senators

    The Financial Freedom Act, sponsored by Republican Senator Tommy Tuberville in May 2022, would permit Americans to include bitcoin in their 401(k) retirement savings plans without being subject to regulatory interference.

    Related: Fidelity-Huge adoption gaps and resistance to crypto winter

    Fidelity has continued to boost its investment in the digital asset market and has plans to add 100 additional staff and 25% more space to its digital asset division by the end of Q1 2023.