While only a few years have passed since the introduction of bitcoin, a key breakthrough is again changing where and how the cryptocurrency operates.

According to Anne Tergesen of The Wall Street Journal, Fidelity Investments is taking the initiative and allowing investors to set up bitcoin accounts in their 401(k)s. This marks a major milestone in the cryptocurrency and investment markets as Fidelity is the first significant retirement account firm to offer this option. The opportunity looks to become available sometime mid-year for employers to provide for their staff.

Connecting the crypto world to traditional retirement savings offers a direct route between these two financial realms. As many early investors in BTC have seen, its meteoric rise turned some people into fast millionaires. But how does the reality of bitcoin factor into retirement investing?

This post provides some critical information you need about this new change at Fidelity and what it could mean for retirement investing.

Bitcoin 101

For those who have not yet ventured into cryptocurrency, here is a quick breakdown from bitcoin.org of what it is all about:

• First made available in 2009, bitcoin is a decentralized, peer-to-peer digital currency with no bank or other intermediary.

• Transactions are securely verified using cryptography and publicly recorded on a blockchain — a shared digital ledger synchronized worldwide.

• Users have bitcoin wallets that contain their balances. They can use bitcoin for payments throughout the world.

Many companies and corporations already invest in bitcoin in multiple ways. Examples include Tesla, Coinbase, and Block (formerly Square).

How Fidelity 401(k) Bitcoin Investing Works

This new option allows employees to set up bitcoin in their 401(k)s through a Digital Assets Account (DAA). This shows within an investor’s leading lineup of options. Like other channels, employees can designate amounts, view current performance and trends, and analyze the cryptocurrency.

Sponsors of this plan can determine precisely how much employee contribution can come from the DAA. Additionally, they can limit how much of a donation is allocated to bitcoin.

One common question investors ask relates to the perceived instability of the cryptocurrency. For instance, in 2020, at the start of the pandemic, bitcoin lost half of its value in just two days. While the market as a whole was affected by COVID-19, this unceremonious drop revealed how quickly cryptocurrency could shift in value.

The answer to these concerns relates to individual decision-making factors about risk tolerance. The truth is that all investments fell sharply thanks to COVID-19. But, like any avenue, some risks and volatility will always play a role in retirement accounts.

As a decentralized currency, bitcoin allows for a new and often exciting glimpse into the future of money. Yet, with that future-facing perspective, there will always be uncertainty.

Fidelity’s approach considers bitcoin as one digital asset among many other investment streams. As a result, the amount invested in the cryptocurrency can be limited to help mitigate both perceived and actual risk.

Risk and Reward?

Ambiguity about cryptocurrency is why many firms have kept it out of investment options. But Fidelity’s move to include it comes at a time when more digital currency adoption is occurring throughout the world.

Could their move be a precursor to the future of 401(k)s and other retirement investing?

Analysts say part of Fidelity’s decision to go ahead with BTC came thanks to President Biden’s executive order in March, which will put the digital dollar and cryptocurrency under the microscope.

The Commerce Department, Treasury Department, and several other government agencies will develop reports on what the order calls “the future of money.” This includes the role of cryptocurrencies like bitcoin in how they impact the global economy.

Despite the ambiguity and uncertainty, Fidelity’s move shows the direction investment money is heading. Don’t be surprised to see other financial firms adopting BTC as an option — and likely other cryptocurrencies in the future.