Is Bitcoin going mainstream?

Bitcoin – the crypto that came in from the cold.

Despite the dramatic price falls in Bitcoin at the tail end of 2021, Germany is giving the go-ahead for Bitcoin and Ethereum to form part of a nationwide savings offering, and Fidelity in the US is to allow Bitcoin to form up to 20% of employee investment schemes. Does this increasing acceptance mean that Bitcoin is now moving solidly into the mainstream of financial services?

The news that the Sparkasse institution in Germany is making Bitcoin a savings option and Fidelity is to allow Bitcoin to form up to 20% of retirement investment planning is all the more pertinent following Bitcoin’s well-publicized price fall at the end of 2021. Since Bitcoin began, one of the strongest reasons for caution among the world’s financial establishments was price volatility. There were other reasons too; namely fraud, lack of consumer protection, and money laundering, but in view of the two paradigm shifts above, it would seem that price volatility is not the obstacle it once was. Indeed, it’s likely that the growing institutional acceptance of crypto may help promote the wider confidence that it lacks.

Crypto’s move into the mainstream of retirement planning, at least with Fidelity, marks a significant chapter in the crypto story. There are others; in early 2022, Switzerland announced that the Canton of Lugano had declared Bitcoin as legal tender and, hot on the Fidelity news, is the announcement that Goldman Sachs is to offer crypto-backed mortgages. Mortgages are a tremendously emotive financial subject given the financial meltdown brought about by the unrestrained growth of sub-prime mortgage lending.

Fidelity’s plans, however, announced in late April, make it the first major retirement player to allow affiliated savers to invest in Bitcoin. That’s 23,000 companies using Fidelity’s retirement services being able to add Bitcoin to their employees’ investment planning. Under the scheme, employees can transfer up to 20% of their balance into a Bitcoin-holding account, and divert up to 20% of their salary contributions going forward.

Acceptance at the top – but acceptance at the bottom?

The Fidelity move is a bold and, to some, controversial move. Employers can impose lower caps or opt out altogether but it remains to be seen whether employees will want to add crypto to their sacrosanct 401k retirement schemes. For individuals, trading for crypto gains is one thing, and pension planning is another. The Fidelity decision offers a parallel with that of Germany’s leading savings institution, known as Sparkasse (an affiliated group of some 350 plus savings banks in Germany) which is set to allow savers to invest part of their savings in Bitcoin and Ethereum. In both cases, the strategic decision at the top, may or may not be enthusiastically taken up by the investors and savers at the grassroots level. Trading in crypto or using it for peer-to-peer transactions is well-established but holding crypto for pension planning and saving among the wider public may take time to catch on. The results of the decisions above can only be assessed further along the line.

A hedge against inflation?

Governments’ concerns for crypto are primarily centered on fraud, money laundering, and terrorist financing, resulting in a raft of AML legislation in worldwide economies. There is generally less positive regulation over consumer protection – although this is changing – than with traditional financial products which are well-understood. As a result, what we are seeing with Fidelity and Sparkasse is the private financial sector taking the lead in some ways.

Perversely, the current world environment; Ukraine, rising inflation, supply-chain weakness, and the lingering effects of Covid-19 have arguably strengthened the case for wider crypto acceptance than weakened it. Advocates of having a degree of crypto exposure within a savings/pension portfolio say it acts as further spreading of risk, offsetting potential losses in traditional investments. It could be argued that crypto and Bitcoin especially is a valuable hedge against inflation hedge – remembering that Bitcoin is conceptually seen as ‘inflation-proof’ due to its limited supply.  Be that as it may, the groundbreaking decisions by Fidelity and the Sparkasse, are to date exceptions rather than the rule.