The Risks of Cryptocurrency and Private Equity in Retirement Portfolios

The inclusion of cryptocurrency and private equity in retirement portfolios has become a contentious issue in 2025, driven by regulatory shifts under the Trump administration. On August 7, 2025, President Trump signed an executive order titled Democratizing Access to Alternative Assets for 401(k) Investors, which directed the Department of Labor and the Securities and Exchange Commission to facilitate access to alternative assets like cryptocurrency, private equity, and real estate in retirement accounts. This marked a stark departure from the Biden administration's 2022 guidance, which had cautioned against the risks of these investments in retirement plans. While the executive order aims to democratize access to alternative assets, it has sparked significant concerns about investor protection, regulatory oversight, and the long-term security of retirement savings.

Regulatory Shifts and Their Implications

The Trump administration's executive order rescinded prior DOL guidance that had discouraged the inclusion of private equity and cryptocurrency in retirement accounts. For instance, the DOL's 2021 Supplemental Private Equity Statement had emphasized the risks of illiquidity and high fees associated with private equity. The new order, however, mandates that the DOL and SEC reassess these restrictions, potentially creating safe harbors for fiduciaries to include alternative assets without fear of litigation. This regulatory pivot reflects a broader ideological shift toward deregulation, but it also raises critical questions about the readiness of retirement savers to navigate complex, high-risk investments.

The SEC has also been tasked with revising regulations to lower barriers for retirement investors to access private markets. While proponents argue this fosters diversification and long-term growth, critics warn that such moves prioritize industry interests over investor protection.

Cryptocurrency: Volatility, Fraud, and Regulatory Gaps

Cryptocurrency's inclusion in retirement portfolios remains particularly controversial. The DOL's 2022 Compliance Assistance Release No. 2022-01 had highlighted the risks of crypto's volatility, lack of regulatory oversight, and susceptibility to fraud. These warnings were rescinded in 2025, but the underlying risks persist. For instance, the "crypto winter" of 2022 saw $2 trillion in value erased, leaving many investors with significant losses. The absence of a robust regulatory framework-such as standardized valuation methods or clear fiduciary guidelines-means that retirement savers could face severe losses during market downturns.

Moreover, the crypto industry's opaque nature exacerbates risks. As noted by industry insiders, early-stage crypto projects often benefit insiders while retail investors bear the brunt of devaluation. This dynamic, combined with the lack of historical stress-testing for crypto in retirement accounts, raises concerns about systemic vulnerabilities during economic crises.

Private Equity: Illiquidity, Fees, and Transparency Issues

Private equity, while traditionally a staple of institutional portfolios, poses unique challenges for retirement accounts. The asset class is characterized by long lock-up periods, high management fees (often 2% annually), and performance fees (20% of profits). These costs starkly contrast with the average 0.26% fees of mutual funds. Additionally, private equity's illiquidity means investors may struggle to access their funds during emergencies, a critical flaw for retirement savings.

The SEC's 2020 risk alert underscored conflicts of interest in private funds, where managers may prioritize their own returns over investor interests. The lack of transparency in private equity valuations further complicates matters for retirement plan fiduciaries, who must ensure that investments align with ERISA's fiduciary standards according to practice center guidance.

Investor Protection Concerns and Legislative Responses

Senators like Elizabeth Warren and Bernie Sanders have raised alarms about the executive order's potential to expose retirement savers to undue risk. They argue that private equity and crypto investments lack the safeguards of public markets and could lead to a "wealth transfer" from ordinary workers to Wall Street and crypto executives according to financial security reports. A 2024 GAO report on crypto volatility and a 2020 SEC risk alert on private equity conflicts of interest have reinforced these concerns.

In response, Warren and Sanders posed nine detailed questions to the DOL and SEC, demanding clarity on fiduciary duties, transparency requirements, and participant education. The Financial Freedom Act, introduced in 2025, seeks to reduce ambiguity around digital assets in retirement plans but has yet to address the core risks of illiquidity and fraud.

Regulatory Responses and the Path Forward

The DOL has begun rescinding restrictive guidance, such as the 2021 Supplemental Private Equity Statement, while the SEC is exploring changes to accredited investor rules according to executive action details. However, these actions have not been accompanied by robust investor education initiatives or safeguards against fraud. For example, the DOL's new guidance emphasizes that fiduciaries must conduct "thorough due diligence" but provides no concrete standards for evaluating crypto or private equity investments.

Employers and plan sponsors now face the challenge of balancing regulatory flexibility with participant protection. As one industry report notes, "employers must carefully evaluate liquidity, platform compatibility, and fiduciary obligations under ERISA" when considering alternative assets. Without clear regulatory frameworks, the onus falls on financial advisors and plan sponsors to navigate these complexities-a task that many may be ill-equipped to handle.

Conclusion

The Trump administration's push to expand access to cryptocurrency and private equity in retirement accounts reflects a broader ideological commitment to deregulation. However, the risks associated with these assets-ranging from crypto's volatility to private equity's illiquidity-demand rigorous oversight and investor education. While the DOL and SEC have taken steps to facilitate access, they have yet to address the systemic vulnerabilities that could jeopardize retirement savings. For now, retirement savers must proceed with caution, ensuring that any allocation to alternative assets is limited, diversified, and aligned with their long-term financial goals.