Trump Paves Way for Crypto and Private Equity To Be Used in 401(k) Retirement Plans With New Executive Order

The US retirement savings market is on the brink of its most significant changes in decades. President Donald Trump signed an executive order on Thursday that will allow Americans to invest their retirement savings or 401(k) investments in cryptocurrency, private equity, real estate and other alternative assets. 

The executive order paves the way for alternative asset managers to have access to a pool of funds worth trillions of dollars.

What the New Order Means for 401(k) Plans

Americans' retirement plans are governed by the Employee Retirement Income Security Act of 1974, better known as ERISA. Most 401(k) investments are largely restricted to traditional assets, including equities, bonds, and cash equivalents. 

The new executive order challenges the framework, calling on federal agencies, including the Labor Department and Securities and Exchange Commission, to rewrite rules and regulations to allow for the expanded choices, which will take six months or more to complete.

Alternative and traditional asset managers are eager to grab a slice of the 401(k) retirement plans that around 90 million Americans participate in, which hold between $9 trillion and $12 trillion in assets. 

Even a small allocation of this capital toward alternative investments will boost institutional-grade inflows in crypto firms, make private equity managers gain a stable, long-term capital source and give real estate investment vehicles increased allocations, which will add another layer to diversification of retirement savings.

What This Means for Crypto

The order will help boost crypto prices, which, under President Joe Biden, the DOL put out guidance that fiduciaries should be treated with "extreme care before they consider adding a cryptocurrency option to a 401(k) plan's investment menu for plan participants." 

On the news of the new executive order, Bitcoin's price jumped 2% to $116,542 and has nearly doubled since Trump was elected. "It was inevitable that bitcoin would make its way into American 401(k)'s," according to Cory Klippsten, the CEO of Swan Bitcoin. 

He added that, "As fiduciaries realize bitcoin's risk-adjusted upside over the long term, we'll see growing allocations, especially from younger, tech-savvy workers who want hard money, not melting ice cubes."

Trump: The Crypto President 

Trump is living out his commitment to make the US into the "crypto capital of the world". Trump said in the order that his "Administration will relieve the regulatory burdens and litigation risk that impede American workers' retirement accounts from achieving the competitive returns and asset diversification necessary to secure a dignified, comfortable retirement."

In March, Trump hosted several industry leaders at the White House and signed an executive order that seeks to establish a Strategic Bitcoin Reserve and a separate stockpile of other digital assets. 

He has also promised to promote crypto-friendly regulators and end or pause lawsuits and investigations that target the likes of Coinbase, Robinhood, Uniswap Labs and OpenSea.

Bloomberg Billionaires Index confirmed that Trump and his family have launched multiple crypto ventures, and the projects have added at least $620 million to their net worth in recent months.

Risks and Rewards

Opening 401 (k)s to private market products will potentially improve portfolio diversification, provide greater access to high-growth sectors, and offer savers more investment options and greater potential upside. On the flip side, there comes a higher risk and bigger fees that may leave retirement plan administrators vulnerable to lawsuits. 

Analysts are majorly concerned that allowing cryptocurrency to be included in 401(k) contributions brings too much risk and sharp drawdowns, mostly because crypto is inherently speculative and in recent years has been the subject of rampant fraud. 

According to the executive director of Georgetown University's Baratta Center for Global Business, Anil Khurana, "Opening up the $9tn 401(k) industry to alternative assets overall is reasonable, but if these assets and sectors are highly speculative and underregulated, it could be a big mistake." 

Regulatory Headwinds Ahead

There is no immediate change in how people invest part of their work earnings. Regulatory agencies must first update ERISA guidelines, create safe harbor provisions to protect plan sponsors from excessive liability, and issue detailed compliance frameworks.

Even after the regulations are written, it will take a while for major retirement plan companies, such as Vanguard, Fidelity, T. Rowe Price, and others, to develop appropriate funds for employers to use. There is a high chance that employers will not revise their retirement plan options quickly, as it may take several years before crypto and private equity investments become the "go-to" in an individual's retirement plan.

A Cautious But Desirable Future 

401(k) retirement savers will require strong fiduciary oversight, robust risk management frameworks, and clear investor education before making any investment in alternative assets. While the timeline for implementation remains unclear, the policy is a big step toward "democratizing" access to alternative investments in US retirement planning. 

Its effect will depend on how regulators balance protecting investors with encouraging market innovation, and whether the potential benefits can outweigh the risks in long-term retirement portfolios.