US President Donald Trump signed an executive order on Aug. 7, allowing crypto in 401(k) retirement plans. The crypto industry has called the move a win for adoption, but investment professionals warn it comes with significant risk.
The order “Democratizing Access to Alternative Assets for 401(k) Investors” directed US financial regulators to expand access to crypto and private companies in 401(k) plans.
The 401(k) employee-sponsored investment scheme is one of the most popular retirement plans in the US. As of 2024, 401(k) plans held $8.9 trillion in assets. As such, it would represent a huge source of demand for cryptocurrencies and could send prices skyrocketing.
Crypto traders may see the move as a bullish signal for further price spikes, but financial professionals and market observers say there are significant risks.
What risks does Bitcoin pose for 401(k) investors?
Trump’s order opens up avenues of investment that were previously locked out of America’s most popular retirement plan, directing the US Labor Department to reevaluate restrictions on six different asset groups:
Private equity
Real estate (including debt instruments secured by real estate)
Crypto investment products that are actively managed
Commodities
Projects financing infrastructure development
Longevity risk-sharing pools.
Industry observers have claimed that more capital coming into crypto markets will drive crypto prices upward. André Dragosch, head of European research at crypto asset manager Bitwise, told Cointelegraph in a “Chain Reaction” show on X that this could see Bitcoin’s price pass $200,000 by the end of the year.
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, told Cointelegraph, “Increased adoption of Bitcoin in 401(k)s unlocks a large pool of capital and passive investment flows that drive stability and reduce volatility of the asset.”
A 401(k) is an employer-sponsored retirement savings plan in the US that allows employees to contribute part of their income, often matched in part by an employer, to be invested in various funds. 401(k)s are often tax-deferred or tax-advantaged.
401(k)s may be good for crypto, but financial professionals aren’t as certain whether crypto will be good for 401(k)s.
One issue that concerned observers was the high fees associated with some of these alternative investments. According to the Investment Company Institute (ICI), most 401(k) plan assets have fees averaging just 0.26%, while private equity generally uses a “2 and 20” structure, wherein managers collect a 2% overall fee and 20% of any returns.
Philitsa Hanson, head of product, equity and fund administration at Allvue Systems, said, “I don’t think people are talking enough about the potential for higher fees.”
The executive order “raises more questions than answers,” Hanson continued. “Someone will need to be very thoughtful about how these types of assets can be incorporated.”
Bitcoin (BTC) exchange-traded funds (ETFs) generally enjoy fees comparable to the ICI average, although some major outliers, such as ProShares Bitcoin Strategy ETF, Valkyrie Bitcoin and Ether Strategy ETF and Grayscale Bitcoin Trust ETF, have fees of 0.95%, 1.24% and 1.50%, respectively. Fees also do not include other aspects affecting profitability, like liquidity and trading costs.
Related: Michigan pension fund deepens Bitcoin exposure with $11M stake in ARK ETF
Ary Rosenbaum of the Rosenbaum law firm wrote that Bitcoin is far too volatile to be included in a 401(k): “When Bitcoin drops 40% in a week — and it will — plaintiffs’ attorneys will come knocking. ‘Why did you offer such a risky asset?’ ‘What due diligence did you perform?’ ‘Where was the risk disclosure?’”
He called crypto a “fiduciary minefield.” It contains complex mechanisms like staking, forks and air drops and has complex tax treatment. “Suddenly you’ve built a participant education nightmare.”
Margaret Rosenfeld, chief legal officer of staking provider Everstake, told Cointelegraph, “The biggest risks are familiar ones for any investments: market volatility, cybersecurity, and fiduciary exposure.”
“That said, these risks aren’t insurmountable.”
401(k) plans need “plumbing upgrade”
Rosenfeld said that updates to regulations and guidance around 401(k)s could alleviate many of the associated risks. Firstly, she suggested creating a clear standard for what could be considered a “prudent” digital asset.
She said that the Employee Retirement Income Security Act of 1974, which regulates what ought to be included in retirement plans, “was built for stocks and bonds, not blockchains.”
Rosenfeld recommended an “upgrade to the retirement system’s plumbing,” stating, “The recordkeeping systems that power 401(k)s aren’t designed for forks, airdrops or real-time volatility. We need digital asset-ready platforms that track every onchain event automatically.”
She also said that regulators should define benchmarks for liquidity, transparent pricing, custody and cybersecurity to ensure that certain digital assets are “retirement-ready,” including independent risk ratings.
“Managed properly, crypto in 401(k)s could diversify retirement portfolios and bring greater transparency to a space that has often operated outside institutional oversight,” Rosenfeld said.
But much is contingent on crypto being managed properly. Rosenbaum wrote that crypto can be a valuable addition to a retirement portfolio, as it provides diversification, a hedge against inflation and “exposure to financial innovation.” Still, it doesn’t belong in a 401(k).
“Use a brokerage account. Use a Roth IRA with a self-directed option. Use your discretionary income. But don’t use the plan designed to be the financial lifeline for someone’s retirement,” he said.
Rosenbaum wrote that, as things stand, crypto is not a viable asset for 401(k)s. “It’s a shiny object, and chasing it puts participants — and sponsors — at unnecessary risk. A conservative 1%–5% allocation doesn’t fix the fundamental issue: volatility and complexity don’t mix with retirement plans.”
The Trump administration’s move to loosen requirements on 401(k)s repeats a pattern in recent lawmaking wherein user protection and systemic risks take a back seat to boost crypto adoption and the digital asset industry. The integration of crypto into the traditional financial system hasn’t been stress-tested, and the results are unpredictable.
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This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.
