Crypto in 401(k)s: Boon for Innovation or Risk to Retirement Savings?

U.S. lawmakers are intensifying pressure on the Securities and Exchange Commission (SEC) to enforce an executive order signed by President Donald Trump in August 2025, which aims to open the $12.5 trillion 401(k) market to cryptocurrency investments. The order, part of a broader push to make the U.S. the “crypto capital of the world,” mandates that the SEC, Department of Labor (DOL), and Treasury Department establish regulatory frameworks to permit alternative assets—including crypto—within retirement savings plans. This move follows years of regulatory caution, with the DOL previously issuing warnings against crypto inclusion due to volatility and custodial riskstitle6^[6].

The executive order has already catalyzed action in the public sector. Michigan’s largest public pension plan, for instance, holds $44 million in bitcoin and $30 million in Ethereum exchange-traded funds (ETFs), illustrating how institutional investors are testing crypto’s potential. While these holdings represent less than 1% of the state’s $115 billion portfolio, they signal a shift in risk tolerance among pension managerstitle5^[5]. Advocates, including crypto proponents like Detroit’s “Bitcoin Butcher,” argue that 401(k) participants should have access to the same alternative assets available in traditional pension plans, such as private equity and real estatetitle5^[5].

Regulatory clarity remains a critical hurdle. The DOL’s recent reversal of its 2022 guidance—a move described as adopting a “facts-and-circumstances” standard—has restored fiduciary discretion for plan sponsors to evaluate crypto as an investment optiontitle6^[6]. However, the GAO cautions that crypto’s high volatility and lack of standardized valuation methods pose risks for participants, particularly those nearing retirementtitle8^[8]. The agency notes that 401(k) fiduciaries remain responsible for ensuring prudence in selecting investments, even as self-directed brokerage windows expand access to cryptotitle8^[8].

Market dynamics suggest significant potential for crypto adoption in retirement plans. Bitwise Asset Management’s head of European research, André Dragosch, predicts that crypto inclusion in 401(k)s could drive Bitcoin to $200,000 by year-end, assuming a modest 1% portfolio allocation across the $12.2 trillion industrytitle7^[7]. This projection hinges on the interplay between the SEC’s approval of spot Bitcoin ETFs and the anticipated easing of Federal Reserve interest rates, which could further boost demand for alternative assetstitle7^[7].

Critics, however, emphasize the risks of exposing retirement savings to highly speculative assets. Alicia Munnell, a senior advisor at the Center for Retirement Research, calls crypto inclusion in 401(k)s a “terrible idea,” citing its volatility and lack of long-term performance datatitle5^[5]. Legal experts also warn of liability concerns for employers offering crypto options, particularly for older workers or those with limited financial literacytitle5^[5]. The GAO underscores the absence of comprehensive federal oversight, noting that self-directed brokerage windows—where most crypto investments occur—lack the same regulatory safeguards as core investment optionstitle8^[8].

As the DOL, SEC, and Treasury work to finalize rules within 180 days, the focus will shift to implementation. Employers are advised to adopt cautious strategies, such as setting allocation caps and partnering with crypto-savvy advisors, to balance innovation with risk managementtitle6^[6]. For investors, the decision to allocate retirement savings to crypto will depend on individual risk tolerance, age, and market conditions—a reality that underscores the complexity of integrating digital assets into mainstream financetitle5^[5].