The Inflationary and Structural Risks of Crypto in 401(k)s Under Trump's Executive Order

The recent Executive Order signed by President Donald J. Trump to democratize access to alternative assets in 401(k) plans has reignited debates about the role of cryptocurrencies in retirement savings. While the administration frames this move as a step toward financial empowerment, the structural and inflationary risks embedded in crypto's volatility, opacity, and high fees demand a cautious, fiduciary-focused analysis. For retirement plan fiduciaries, the inclusion of digital assets in defined-contribution plans is not merely a regulatory question—it is a test of prudence, liquidity management, and long-term stewardship.

The Fiduciary Tightrope: Balancing Innovation and Risk

The Employee Retirement Income Security Act of 1974 (ERISA) mandates that fiduciaries act with prudence, loyalty, and diversification in managing retirement assets. Trump's Executive Order, which directs the Department of Labor (DOL) to reevaluate its 2021 cautionary guidance on private equity and crypto, aims to reduce regulatory barriers to alternative investments. However, the fiduciary calculus for crypto remains fraught.

Cryptocurrencies are inherently volatile, with price swings that defy traditional risk-return paradigms. For example, Bitcoin's 52-week range as of August 2025 is $28,000 to $72,000—a 157% swing—compared to the S&P 500's 12% range. This volatility creates a paradox for fiduciaries: while crypto's potential for high returns is undeniable, its short-term swings can erode retirement savings, particularly for older investors nearing retirement. The DOL's 2022 guidance, which warned of “serious concerns” over crypto's suitability for 401(k)s, highlighted this asymmetry.

Operational challenges further complicate the fiduciary duty. Unlike stocks or bonds, crypto requires specialized custodial infrastructure. Digital wallets are vulnerable to hacking, lost private keys, and exchange insolvency. Fidelity and ForUsAll, the primary custodians offering crypto access in 401(k)s, currently support only Bitcoin and Ethereum. This limited diversification within the crypto asset class itself raises questions about whether fiduciaries are fulfilling their diversification obligations under ERISA.

Liquidity and Valuation: A Double-Edged Sword

Liquidity is another critical concern. While the S&P 500 trades with near-instant execution, many altcoins and even Bitcoin face liquidity gaps during market stress. For instance, during the March 2025 crypto crash, the bid-ask spread for Bitcoin widened to 8%, compared to 0.05% for the S&P 500. This illiquidity can force retirees into fire-sales of assets at depressed prices, undermining the very purpose of retirement savings.

Valuation opacity compounds the problem. Traditional assets are priced using transparent market mechanisms, but crypto's value is often derived from speculative trading, with no standardized methodology for assessing intrinsic worth. The lack of a reliable valuation framework makes it difficult for fiduciaries to accurately assess risk-adjusted returns or ensure fair pricing for participants.

Compliance and Litigation: A Regulatory Minefield

The regulatory landscape for crypto remains fragmented and evolving. The SEC's ongoing efforts to define crypto as a security, commodity, or both create uncertainty for fiduciaries. For example, the SEC's recent enforcement actions against unregistered crypto offerings have exposed 401(k) providers to potential liability if they include tokens deemed unregistered securities.

Moreover, the fiduciary duty to monitor investments is amplified by crypto's high fees. Platforms like Coinbase and Binance charge 0.5% to 2% in trading fees, while custodial services add another 1-2%. These costs, combined with the lack of FDIC or SIPC protections, leave participants vulnerable to losses from fraud or theft. The 2021 Jackson v. Intel Corp. Supreme Court ruling, which affirmed that fiduciaries can include alternative assets if they follow a “thorough and objective process,” does little to mitigate the asymmetric risk of litigation when high fees accompany poor performance.

A Cautious Path Forward: Asset-Neutral Regulation

The Executive Order's emphasis on expanding access to alternative assets is well-intentioned, but it risks prioritizing political momentum over fiduciary prudence. To protect savers, regulators should adopt an asset-neutral framework that:
1. Mandate Safe Harbors: Create clear guidelines for including crypto in 401(k)s, such as limiting allocations to 5% of a fund's portfolio and requiring daily liquidity buffers.
2. Standardize Valuation Protocols: Develop industry-wide benchmarks for valuing crypto, akin to the FASB's ASC 820 for private equity.
3. Enhance Disclosure Requirements: Require fiduciaries to disclose not only fees but also the specific risks of volatility, custody, and regulatory uncertainty.

For investors, the lesson is clear: crypto should not be a core holding in retirement portfolios. Instead, it should be treated as a speculative satellite asset, with allocations strictly limited and hedged against broader market risks.

Conclusion: Prudence Over Hype

Trump's Executive Order signals a shift toward embracing crypto in retirement planning, but the structural risks—volatility, liquidity gaps, and regulatory ambiguity—demand a measured approach. Fiduciaries must prioritize long-term stability over short-term gains, ensuring that the pursuit of innovation does not compromise the financial security of millions of retirees. As the DOL and SEC finalize their guidance, the focus should remain on crafting a regulatory framework that balances innovation with accountability, safeguarding the future of American retirement savings.