In 2025, U.S. investors are now permitted to include Bitcoin in their 401(k) retirement plans, a development that has sparked significant debate regarding the associated risks. This shift follows an executive order signed by former President Donald Trump on August 7, 2024, which aimed to expand access to cryptocurrency investments within 401(k) plans. While proponents of cryptocurrency view this as a milestone for adoption, financial experts caution that it introduces considerable risks to retirement savings.
The executive order titled “Democratizing Access to Alternative Assets for 401(k) Investors” mandates U.S. financial regulators to reassess restrictions on various asset categories, including:
- Private equity
- Real estate, including debt instruments secured by real estate
- Actively managed crypto investment products
- Commodities
- Infrastructure development projects
- Longevity risk-sharing pools
As of the end of 2024, 401(k) plans managed approximately $8.9 trillion in assets, representing a substantial source of capital that could potentially influence cryptocurrency prices. Some analysts, such as André Dragosch from Bitwise, predict that this influx of investment could propel Bitcoin’s price beyond $200,000 within the year. However, the enthusiasm from traders is met with skepticism from investment professionals who highlight the inherent risks of including cryptocurrency in retirement plans.
While 401(k) plans allow employees to invest part of their income, often with employer matching, the introduction of Bitcoin raises serious concerns regarding volatility and fees. Currently, the average fees for traditional 401(k) plan assets hover around 0.26%, but alternative investments like private equity typically charge much higher fees—often structured as “2 and 20,” where managers take a 2% management fee plus 20% of any profits. Philitsa Hanson, head of product at Allvue Systems, emphasizes the need for careful consideration of the potential for increased fees when integrating Bitcoin into 401(k) plans.
“I don’t think people are talking enough about the potential for higher fees,” said Hanson. “The executive order raises more questions than answers.”
Moreover, the volatility of Bitcoin poses a significant risk. Ary Rosenbaum, an attorney, warns that the unpredictable nature of cryptocurrency could lead to legal dilemmas for plan sponsors, stating, “When Bitcoin drops 40% in a week — and it will — plaintiffs’ attorneys will come knocking.” He refers to the inclusion of Bitcoin in 401(k) plans as a “fiduciary minefield.”
Margaret Rosenfeld, chief legal officer at Everstake, further highlights familiar investment risks, including market volatility and cybersecurity. She suggests that regulatory updates could mitigate some of these risks by establishing clear standards for what constitutes a prudent digital asset under the Employee Retirement Income Security Act of 1974. The current regulatory framework is ill-equipped for the complexities of crypto assets, which include mechanisms such as staking and forks.
Rosenfeld advocates for enhanced recordkeeping systems capable of handling the unique challenges posed by digital assets, as well as defined benchmarks for liquidity and cybersecurity to ensure that these investments are suitable for retirement portfolios. She acknowledges that, if managed effectively, the integration of cryptocurrencies into 401(k) plans could offer diversification and transparency.
Despite the potential benefits, experts like Rosenbaum argue against using 401(k) plans for crypto investments. “Use a brokerage account or a Roth IRA with a self-directed option. But don’t use the plan designed to be the financial lifeline for someone’s retirement,” he advises. The overarching concern remains that the volatility and complexity of cryptocurrencies may not align with the long-term objectives of retirement planning.
As we progress through 2025, the implications of incorporating Bitcoin into retirement plans continue to unfold, revealing a landscape filled with both opportunities and significant risks. For more insights, please refer to the original source: Cointelegraph.
