US President Donald Trump recently opened the door to cryptocurrencies and other alternative assets in his 401(k) retirement account. The move is about to set the White House’s long-term household savings in line with one of today’s fastest growing asset classes.
With nearly $12.5 trillion held in the 401(k), potential inflows into Bitcoin, Ethereum and tokenized assets could warn the ETF (Exchange-Traded Fund) Boom and permanently restructure the market.
Is the 401(k)S code a retirement revolution or is it waiting for an accident to happen?
Headlines sound bullish to cryptography, but fine printing raises difficult questions. From litigation against the trustee to risks of volatility, assessment challenges, and illusions of fraud enter retirement offerings, Trump’s bold push could become a double-edged sword.
With these in mind, experts point out that the move can benefit much more institutions than everyday savers.
So, what’s not going to work?
Institutional investors such as pensions and donations have long been using private equity, hedge funds and alternatives. However, the average worker’s retirement account is primarily limited to stocks and bonds.
Trump’s order marked a fundamental departure from this mode of operation. Supporters say it has been behind for a long time, and the 401ks cipher is much larger than ETF.
“In the US, about 100 million Americans have a retirement investment vehicle called 401(k). In the aggregate, this is ~12T with assets that flow with $500 billion in new capital every two weeks.”
Dunleavy estimates that even a modest 1% allocation could add $120 billion in new crypto flows, with 5% likely to unlock $600 billion.
More importantly, these are not one-time ETF style purchases, but an influx of autopilots that repeat all pay cycles.
However, critics warn that retirement investments are not the same as daily trading or VC-style risk-taking. That’s a terrible idea, according to economist Alicia Munnel, former US Treasury Secretary for Economic Policy.
“Bitcoin on the 401(k)S is a terrible idea. Participants don’t understand the product. It’s a speculative and unstable investment, and getting lost from traditional investment is unlikely to enhance returns, and perhaps not a careful 401(k) option.”
That tension between the potential intergenerational benefits and the risk of widespread misallocation is at the heart of the debate.
Trustee’s nightmare and legal risks
Under US law, the trustee overseeing the 401(k) plan must act carefully and in the best interests of the participants.
That responsibility comes down to thorns when dealing with unstable and unworthy assets. The Labor Department has previously warned that trustees could face lawsuits to expose their retirement savings to code.
“The only way to get there is if BlackRock adds IBIT to a target dating fund. A complete halt. Even self-directed brokerage companies ask if there is a way to ban encryption, as my clients don’t want legal liability.
This concern may explain why hiring will be slow despite Trump’s orders, unless Congress adjusts ERISA (Employee Retirement Income Security Act) laws or introduces protections under the safe 3.0 bill.
Otherwise, the planning manager could be arrested between regulatory authorization and legal exposure.
Financial literacy and volatility issues
Another point of attachment is that most 401(k) investors barely balance their portfolios. Vanguard reports that 84% of participants use Target-Date funds, and in 2024 only 1% of investors traded.
This means that if Crypto is a slot for its default allocation, millions of people could passively expose them without understanding what they have.
For patient investors, that may sound good. However, for retirees near 65 years old, a 70% Bitcoin drawdown can be devastating. Critics of X have already sounded the alarm:
Wall Street wins, what’s the risk on Main Street?
Another criticism is that the order will allow Wall Street businesses to scoop trillions with new fees.
In other words, democratization is sold like that, but the risk is that institutional players enjoy rewards while retailers are incurring losses.
“Your 401(k) can be delivered right away. – Private Equity Funds – Hedge Fund Strategy – Real Estate Partnerships – Venture Capital Transactions. Higher Potential Returns? Yes. Will you be at a higher risk of losing your retirement? Money?” X user Ricardo argued.
Can you slip through the scam?
Meanwhile, the US does not have a shortage of fraudulent cryptographic schemes. If planning managers struggle to distinguish compliant products from dangerous tokens, their retirement savings could be poured into unhealthy projects.
Without airtight measures including voluntary encryption options, you can open the door to fraud in your retirement account.
Even regulated products such as private equity and tokenized real estate have valuation opacity. Bloomberg warns that private equity vehicles trade at volatility 70% higher than global stocks and at a net asset value of up to 30%.
If such assets are bundled with a 401(k) account, the savers could receive more exposure than they know.
Fluidity, innovation, new products as a bullish case
Still, it’s not all fate. Analysts at funds like David Cohne look at the middle path, pushing more crypto mutual fund ideas and putting momentum at the forefront.
“Fund companies have been able to go ahead of the president’s executive order, which will make it easier for them to be slotted in retirement plans by launching more crypto mutual funds,” Cohne said.
Bloomberg ETF analyst Eric Bulknas agrees, noting that crypto mutual funds could be able to serve the 401(k) unless the ETFs are intertwined.
Similarly, Bitwise’s Ryan Rasmussen outlined the upside down, noting that a 10% allocation could bring up to $800 billion to Bitcoin.
This means creating lasting, mechanical bids that can affect the market even at a lower percentage.
Additionally, Trump’s order could accelerate financial innovation, including crypto index funds, low volatile strategies, and compliant products with yields. Such initiatives will expand access without throwing retirees into the deep edge.
The bigger question is whether risk outweighs profits. For millennials and Z, who are used to digital assets and a few years away from retirement, crypto allocation may make sense.
However, for older savers, the outcome of a false allocation can be devastating.
Given the lack of permanence of the executive order, even Trump’s orders prove vulnerable, and meaningful adoption may not arrive until 2026.
Forbes noted that while cryptography may “come to the 401K market,” large-scale recruitment will depend on how planning managers interpret fiduciary duties.
Experts share guardrails that can make cryptography in 401(k) work
Not all experts say that Trump’s order curses disasters. Margaret Rosenfeld, Everstake’s Chief Legal Officer and Securities Law veteran, argues that Crypto responsibly needs more than adding Bitcoin as a new investment option to deploy Crypto into a retirement account.
“It’s about updating rules, technology and protections so that digital assets can seamlessly fit into the retirement system,” she told Beincrypto.
Rosenfeld refers to three priorities:
First, regulators need to set clear standards for what qualifies as a “cautious” digital asset.
This requires a benchmark of liquidity, custody and cybersecurity, allowing the trustee to document due diligence.
Second, custody and staking rules must be modernised.
This allows you to dye the interior of your 401(k) while ensuring insurance protection and wise tax treatment.
Finally, you will need to upgrade the outdated plumbing of the retirement system.
To handle on-chain events such as Forks and Airdrops, the SEC and the Ministry of Labor must work from the same rulebook.
For Rosenfeld, interests are a generation. Young workers have already opted out of 401(k) and are exempt from long-term tax benefits.
If Crypto remains outside the system, so too. However, when integrated with Safeguard, digital assets can reclaim them and fuse innovation with the protection of traditional retirement plans.
“If we succeed, the next generation of savers can enjoy the best of both worlds: digital assets innovation and 401(k) guardrail,” she concluded.
What will be the issue with Trump’s plan to place his post Crypto on 401(k)? It first appeared in Beincrypto.
