Are you positioned for a Bitcoin at $100k?

Christophe Magnin — 27 April 2022

Fidelity’s decision to offer investors the option to invest in Bitcoin in retirement plans is a major catalyst for the ecosystem.

Bottom line

Fidelity, which administers ~25% of the total U.S. retirement assets, will offer the possibility to add Bitcoin to retirement savings. This is a major development for the institutionalization of this asset class. Even if just a fraction of the total U.S. retirement assets are invested in Bitcoin, these net new flows will have a significant impact on Bitcoin price, which is positive for the entire ecosystem and our recently launched Blockchain & Digital Assets strategy.

What happened

Fidelity announced that it will allow individuals to allocate part of their retirement savings in Bitcoin, starting in mid-2022. The decision was made following requests from their client base. Other digital assets are expected to be proposed at a later stage. Publicly listed Microstrategy, well-known for holding ~$5bn of Bitcoin on its balance sheet, announced that it will be the first employer to offer such a solution to its employees.

Impact on our Investment Case

A Bitcoin at $100k?

When in late 2021, Fidelity Investments director of global macro predicted a Bitcoin at $100k by 2023, maybe he was aware of the projects under development within his company. Fidelity is the largest U.S. retirement plan provider, servicing 25’000 companies and 34.7mn accounts. The company had a total of $11.8tn under administration at the end of 2021, of which ~$4.5bn is in 401(k) accounts, the most common U.S. retirement plan.

Fidelity will allow allocation to Bitcoin of up to 20% of the 401(k) accounts. A $100bn net new flow into Bitcoin, ~2% of the retirement assets at Fidelity, is thus possible. The impact on Bitcoin, whose current market cap is ~$740bn, would be significant, possibly lifting the most famous digital asset to new highs. The total assets managed by mutual funds and ETPs invested in digital assets stand at ~$50bn, for a cumulative net new flow since 2016 of <$25bn.

Legitimating this new asset class

Our special bi-weekly on Blockchain & Digital Assets described why investors must consider Bitcoin and peers in a diversified portfolio. We are at an inflection point from a technological point of view, where the economic utility of blockchain is about to skyrocket. Moreover, the current macroeconomic and geopolitical environment justifies the addition of this new asset class. Fidelity’s decision confirms our investment case.

The institutionalization of this asset class is only starting. Fidelity will likely be imitated by the other 401(k) providers and pension funds, an industry managing $19tn in the United States alone. The Houston Firefighters’ Relief and Retirement Fund is the first U.S. pension fund to have invested $25mn in Bitcoin and Ether back in October 2021. This investment accounts for 0.5% of the pension fund's total assets; additional investments are expected.

Our Takeaway

A few weeks after Biden’s executive order on digital assets, Bitcoin is again under the spotlight. Fidelity’s decision to validate Bitcoin as an investment solution for retirement plans will make the crypto ecosystem more popular and mainstream. This decision will have a snowball effect on the entire retirement industry in the United States, with changes in strategic asset allocation that will now include digital assets. The reaction of regulators, if any, will have to be scrutinized. While we know their skepticism towards digital asset speculation and volatility, Fidelity's move may also accelerate regulatory changes.

With these net new flows, a 6-figure price for bitcoin is possible. Our strategy Blockchain & Digital Assets, is well-positioned to capture an appreciation of Bitcoin and other blockchain protocols. In particular, our indirect exposure to this space, e.g., through miners, would benefit the most from a surge in Bitcoin price.