On August 7, US President Donald Trump signed an executive order that permits crypto in 401(k) retirement plans. The crypto sector views this as a significant step forward, yet investment experts caution that it carries substantial risk.
The order titled “Democratizing Access to Alternative Assets for 401(k) Investors” instructs US financial regulators to broaden access to crypto and private enterprises within 401(k) plans.
The 401(k) employee-sponsored investment scheme stands as one of the most prominent retirement plans in the US, boasting $8.9 trillion in assets as of 2024. This could represent a massive source of demand for cryptocurrencies, potentially driving prices up significantly.
While crypto traders might interpret this as a bullish indicator for price increases, financial analysts and market watchers warn of considerable risks involved.
The executive order took effect on August 7. Source: White House
What risks does Bitcoin pose for 401(k) investors?
Trump’s directive unveils investment opportunities that were previously inaccessible within America’s leading retirement plans, guiding the US Labor Department to reassess limitations on six types of asset categories:
Private equity
Real estate (including debt instruments secured by real estate)
Actively managed crypto investment products
Commodities
Projects financing infrastructure development
Longevity risk-sharing pools.
Market experts have asserted that additional capital entering the crypto markets could propel prices upward. André Dragosch, head of European research at Bitwise, mentioned in a “Chain Reaction” segment on X that this might enable Bitcoin to surpass $200,000 by the year’s end.
Is Bitcoin Headed for a 2025 Peak? Or is the 4-Year Cycle Dead? https://t.co/DckFjvkJIx
— Cointelegraph (@Cointelegraph) August 18, 2025
CJ Burnett, chief revenue officer of Compass Mining, stated, “Enhanced adoption of Bitcoin in 401(k)s uncovers a significant reservoir of capital and passive investment flows that can stabilize and reduce the asset’s volatility.”
A 401(k) is a US employer-sponsored retirement savings plan that enables employees to allocate part of their income, often matched by employers, into various investment funds. These plans frequently enjoy tax-deferred or tax-advantaged benefits.
While 401(k)s could be beneficial for crypto, financial experts remain uncertain about whether crypto will positively impact 401(k)s.
Concerns raised by various observers include the high fees associated with some of these alternative investments. The Investment Company Institute (ICI) reveals that the average fee for most 401(k) plan assets is merely 0.26%, whereas private equity typically operates on a “2 and 20” fee structure, where managers collect a 2% overall fee and 20% of the returns generated.
Philitsa Hanson, head of product, equity and fund administration at Allvue Systems, remarked, “I don’t think the potential for higher fees is being discussed enough.”
The executive order “raises more questions than it answers,” continued Hanson. “Consideration needs to be given regarding how such assets can be integrated thoughtfully.”
Mutual funds continue to dominate most 401(k) plans, although other asset classes are on the rise.
Bitcoin (BTC) exchange-traded funds (ETFs) typically have fees comparable to the ICI average, although significant exceptions such as ProShares Bitcoin Strategy ETF, Valkyrie Bitcoin and Ether Strategy ETF, and Grayscale Bitcoin Trust ETF incur fees of 0.95%, 1.24%, and 1.50%, respectively. These fees do not encompass other factors affecting profitability, such as liquidity and trading costs.
Related: Michigan pension fund deepens Bitcoin exposure with $11M stake in ARK ETF
Ary Rosenbaum from the Rosenbaum law firm noted that Bitcoin’s volatility makes it unsuitable for 401(k) inclusion: “When Bitcoin declines by 40% in a week — and it will — plaintiffs’ attorneys will come looking for answers. ‘Why did you offer such a risky asset?’ ‘What due diligence was conducted?’ ‘What was disclosed regarding the risks?’”
He characterized crypto as a “fiduciary minefield,” filled with intricate mechanisms such as staking, forks, and airdrops, leading to complicated tax implications. “This suddenly creates an educational nightmare for participants.”
Margaret Rosenfeld, chief legal officer at Everstake, mentioned, “The primary risks echo those present in traditional investments: market volatility, cybersecurity threats, and fiduciary liabilities.”
“However, these risks can be managed effectively.”
401(k) plans need “plumbing upgrade”
Rosenfeld suggested that regulatory updates regarding 401(k)s could mitigate many associated risks. She proposed establishing clear parameters for what constitutes a “prudent” digital asset.
She noted that the Employee Retirement Income Security Act of 1974, which governs what should be included in retirement plans, “was constructed for stocks and bonds, not blockchain technologies.”
Rosenfeld advocated for an “upgrade in the retirement system’s infrastructure,” asserting, “The recordkeeping systems supporting 401(k)s lack the capability to manage forks, airdrops, or real-time fluctuations. We require platforms adaptable to digital assets that can automatically track every on-chain event.”
Additionally, she remarked that regulators should set benchmarks for liquidity, transparent pricing, custody, and cybersecurity to ensure certain digital assets are “retirement-ready,” alongside independent risk evaluations.
“When managed appropriately, integrating crypto into 401(k)s could diversify retirement portfolios and enhance transparency in a space that has often operated beyond institutional supervision,” Rosenfeld elaborated.
However, much hinges on the effective management of crypto. Rosenbaum argued that crypto could be a beneficial component of a retirement portfolio, providing diversification, inflation protection, and “exposure to financial innovation.” Nevertheless, it’s misplaced in a 401(k).
“Use a brokerage account. Opt for a Roth IRA with a self-directed choice. Utilize your discretionary income. But refrain from incorporating it into the plan designed as a financial safety net for someone’s retirement,” he advised.
Rosenbaum concluded that, under current circumstances, crypto lacks viability as a 401(k) asset. “It’s merely a shiny object, and pursuing it exposes participants — and sponsors — to unwarranted risk. A conservative 1%–5% allocation doesn’t resolve the fundamental dilemma: volatility and complexity are not suitable for retirement plans.”
The Trump administration’s effort to relax regulations on 401(k)s mirrors a trend in recent legislation where user protection and systemic risks are eclipsed by efforts to enhance crypto adoption and the digital asset sector. The incorporation of crypto into the traditional financial framework remains untested under duress, and outcomes remain uncertain.
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This article does not constitute investment advice or recommendations. Every investment and trading action possesses inherent risks, and readers should perform their own research prior to making decisions.
