Your 401(k) and the bitcoin boogie

Opinion editor's note: Editorials represent the opinions of the Star Tribune Editorial Board, which operates independently from the newsroom.

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Bitcoin had a very bad day a few weeks ago, its price crashing along with those of other cryptocurrencies, adding a dollop of misery for those who put money into the asset class without snatching it right back out. The crypto market is notoriously volatile, and the trouble this time was the collapse of part of it known as stablecoins. Go figure.

We refer to the recent misery as an added "dollop" because things did, well, stabilize for crypto, which trades around the clock. Even so, the most prominent cryptocurrencies — of which bitcoin is the mostest — are down by half since November.

So, that'd be a terrible thing to let people muck around with in their retirement accounts, right?

The U.S. Department of Labor thinks so, issuing guidance in March with concerns about the "reliability and accuracy of cryptocurrency valuations" and reminding fiduciaries about their "obligation to ensure the prudence of the options on an ongoing basis." The department isn't necessarily driving a "never crypto" bandwagon, but it's eyeing the reins.

More pointedly, the famed investor Warren Buffett once called cryptocurrency "rat poison squared." More pointedly still, his famed compatriot Charlie Munger recently said bitcoin is "like a venereal disease or something."

And yet.

In April, Fidelity — the mostest among the hosts of retirement accounts — announced a plan that would put bitcoin on the menu of investment options for 401(k)s. But just bitcoin for now, not the multitude of other cryptocurrencies, and only at levels of no more than 20% of an account, and only for those investors whose employers agree to it.

This isn't necessarily a bad thing, despite any purported resemblance of cryptocurrencies to rodenticides or worse. Even Buffett's and Munger's firm, Berkshire Hathaway, has invested in a bank that focuses on crypto.

Consider this: If you're a buy-and-hold investor of the broad market, which is basically what is recommended for most people for most of their working years, you're also down over the last few months — about 20%, as it happens. History suggests that your account will bounce back, but history makes no guarantees about how fast.

Set aside the promises of astronomical long-term gains supporters say are inevitable because of the way some cryptocurrencies, including bitcoin, are designed. While crypto at present can only be described as speculative, there may come a day when it is a reliable alternative to asset classes influenced by central banks. As a nonphysical form of money created using encrypted data (thus the name), the movement of which is managed by decentralized computer networks, not by governments, it could offer investors a way to diversify and potentially steady their accounts.

The Star Tribune Editorial Board wrote last year about signs that crypto was beginning to gain serious traction. The Fidelity plans confirm that. We also wrote that there is room to let the crypto market shake out before deciding how best to regulate it. But that permissiveness can't last forever.

Indeed, there are reasonable questions about Fidelity's plans, and U.S. Sen. Tina Smith of Minnesota is among those raising them. Along with Sen. Elizabeth Warren, D-Mass., Smith wrote a letter to Fidelity asking why the company ignored the Labor Department's guidance; how it plans to deal with various crypto risks, including theft, fraud and the reliability of record-keeping, in addition to volatility; what fees it may charge, and whether it has a conflict of interest as a bitcoin miner. A response is pending.

"My job is not to tell people what to invest in," Smith told an editorial writer. "My job is to make sure that they have accurate and fair information."

That sounds right to us.

In any case, having a bitcoin option in retirement accounts doesn't mean investors have to choose it. They certainly shouldn't if they don't understand it, and even those who think they grasp the concept would be wise to limit their risk to less of their account value than Fidelity would allow. One recommendation we read recently was 1%.

In other words, handle it with care, as with any potential poison.