Trump's support for the crypto industry is truly unwavering. Just last week, he unleashed another powerful force, signing an executive order allowing 401(k) retirement savings plans to invest in a wider range of assets, including private equity, real estate, and, for the first time, crypto assets. This means that up to $8.7 trillion in retirement savings could potentially be exposed to crypto assets. This event has profound implications for both the crypto sector and pensions themselves. Interestingly, this type of positive news, which used to drive up prices within minutes, is less evident in the current crypto market. On the day the announcement was made, BTC remained remarkably stable, while ETH, in contrast, experienced a rare and rapid surge. To discuss the impact of the executive order on the crypto market, we must first consider the US pension system. The US pension system consists of three main components: the first is a government-managed national plan, funded through social security taxes; the second is a voluntary individual retirement plan, similar to my country's current individual pension plan; and the third, and the subject of this article, the 401(k) plan, managed primarily by companies. Under the umbrella of these three components, the US has essentially formed a multi-tiered pension system based on social security taxes, centered around 401(k)s, and supplemented by individual pensions.
To explain 401(k) specifically, it refers to a private enterprise retirement benefit plan established under Section 401(k) of the Internal Revenue Code of 1978. Contributions are jointly made by employers and employees, and employees can independently choose their investment portfolios and enjoy tax-deferral benefits, with flexible access to account funds after retirement. From its terms, the 401(k) plan is similar to my country's enterprise annuity system, with contributions jointly made by the company and employees. However, it's worth noting that, unlike my country's typically centralized management model, companies typically partner with a designated fund company, while employees can independently control their accounts and choose to invest their retirement funds in a variety of products within designated funds, but are responsible for their own profits and losses. While the 401(k) plan isn't universal and clearly can't cover all retirement funding needs, given that nearly 60% of American households have a 401(k), it has become a core part of the American retirement system. This amount of money is naturally substantial. Currently, according to public data, as of March 31, 2025, the total assets of all employer-led defined contribution (DC) retirement plans reached $12.2 trillion. Of this, 401(k) plans held $8.7 trillion. This raises the question: where will the $8.7 trillion flow? Current capital flows reveal that stock funds are the most common type of fund within 401(k)s. Mutual funds manage a total of $5.3 trillion, of which $3.2 trillion is held by stock funds and $1.4 trillion by hybrid funds. The inclusion of stocks demonstrates that the investment landscape of funds is not limited to traditional conservative investments. In fact, given the unique nature of pensions, the investment landscape of the pension system has undergone numerous shifts, from strictly conservative to yield-oriented. Before the Great Depression, pension funds were restricted to investing in low-risk assets such as government bonds, high-quality corporate bonds, and municipal bonds. Following the devastating impact of the Great Depression, the pension system was devastated, and returns dwindled. Some private trusts introduced the "prudent investor rule," allowing for diversification in pursuit of higher returns. This influence spread to states, leading to a surge in stock investment. Ultimately, the Employee Retirement Income Security Act of 1974 applied the prudent investor standard to public pension funds, officially relaxing restrictions on pension funds' access to the equity market. By 2025, this restriction had been further lifted. On August 7th, Trump signed an executive order allowing Americans' 401(k) plans to invest in private equity funds, cryptocurrencies like Bitcoin, and other so-called alternative assets. Trump also instructed Labor Secretary Lori Chavez-DeRemer to work with counterparts at the Treasury Department, the Securities and Exchange Commission (SEC), and other federal regulatory agencies to determine whether rule changes should be made to facilitate this effort. He also directed the SEC to facilitate the inclusion of alternative assets in pension plans with self-invested funds. From a policy perspective alone, this directive will have far-reaching implications for both pension funds and the crypto market. From a pension perspective, this move expands the investment scope of alternative assets like cryptocurrencies and private equity. While broadening pension fund investment channels, it also introduces greater risk and volatility. This signifies a further shift in the pension investment system from a relatively conservative one to a highly open one, including products with illiquidity and complex structures. This represents a radical reform of the pension system. For the crypto market, the significance is even greater. This marks a leap forward in the mainstreaming of crypto assets. With their acceptance within pension funds, crypto assets undoubtedly receive a higher level of national endorsement. From a product perspective, a surge in crypto-asset products packaged as ETFs is foreseeable. More noteworthy, however, is the shift in the demographics of crypto-asset holders. Given that pension funds typically have low turnover and long holding periods, a Vanguard report indicates that the average 401(k) transaction frequency in 2024 will be 0.5 times per month. This means that once this capital enters the crypto market, the underlying price support for these assets will be further consolidated. In other words, if this capital flows heavily into ETFs primarily based on BTC and ETH, the volatility of major cryptocurrencies will actually decrease significantly, shifting the nature of these assets from risk-on assets to safe-haven assets. In the medium to long term, this executive order will boost the market size. After all, with $9 trillion in capital, even if only 5% of it is held, that's a staggering $4.5 trillion. However, the greater the impact, the louder the market's voices will naturally be. Traditional financial participants have stated that alternative assets, with their high fees and poor liquidity, present significant opportunities for asset management companies, increasing their incentive to include them in their portfolios. These assets also come with lower disclosure requirements. However, for individual investors, who are detached from the market, it can be difficult to fully understand the asset attributes and risks before investing. This information asymmetry could significantly harm investor interests and increase legal risks. Furthermore, it's worth noting that even though the executive order has been issued, its implementation will take time. For asset management companies responsible for product development, the widespread adoption of new products typically takes years. Perhaps for these reasons, the market wasn't as excited as expected following the announcement of this significant executive order, instead experiencing a certain lag effect. BTC rose only 2% in the 24-hour period, but judging by fund inflows, neither spot trading volume nor BTC ETFs saw a significant increase within the same 24-hour period following the announcement. However, after August 11th, BTC actually surged, exceeding $122,000. Interestingly, Ethereum experienced a starkly opposite trend. Within 24 hours of the pension information release, ETH spot trading volume increased significantly, accompanied by a rapid price increase, soaring from $3,600 to over $4,000 on August 8th. Currently, ETH has reached $4,299, surpassing BTC once again in this round of growth. ETFs also saw an increase in holdings, with ETH ETFs seeing a net inflow of $680 million over the two-day period. While both saw simultaneous increases, ETH's gains were more sensitive and rapid. Market participants are suggesting that funds appear to be flowing from Bitcoin into Ethereum. Similar trends are also evident in the derivatives market. The annualized premium of Ethereum futures on the Chicago Mercantile Exchange (CME) to spot prices has exceeded 10%, exceeding that of Bitcoin, prompting some traders to shift positions from Bitcoin to Ethereum. Looking solely at the ETH/BTC trading pair, despite recent increases, trading volume has yet to significantly surpass average levels, making the theory of a vampire slump difficult to substantiate. As for why ETH is more responsive, there are likely multiple reasons. Firstly, institutional accumulators are contributing to the growth. Cryptocurrency treasuries focused on ETH have already accumulated approximately $13 billion worth of ETH. This influx of funds has led to a more pronounced increase in ETH, given its lower price. Second, there's support from large ETF institutions. The ETH ETF has attracted over $6.7 billion in net inflows this year, with the strong backing of asset management giant BlackRock. The core of this market manipulation is the SEC's blueprint for "all financial markets on-chain." Ethereum, as the leading public blockchain, is a direct beneficiary of this policy. Third, there's off-market bullishness. Last week, Bitmine Chairman Tom Lee's passionate bullishness is a prime example. In a podcast featuring his predictions of Ethereum's future, he predicted it could reach $15,000. This 180,000-view video appears to have been effective in attracting retail investors. Compared to the booming BTC and ETH, the altcoin market remains gloomy. With ETH breaking through the long-awaited $4,000 mark, altcoins are also following suit, with their market capitalization increasing by over 15% compared to last week. However, a closer look reveals that, aside from a few blue-chip altcoins that saw gains, over 70% or even 80% of the altcoins remain depressed. The reason is obvious. ETH's surge stems from institutional investment, not from the crypto market's own funds. In the current context of limited liquidity, institutional investors are choosing more conservative investments, preferring currencies with manageable risk. This, in turn, hinders the flow of funds into the altcoin market. In other words, the capital-driven rise of Ethereum is difficult to transmit to altcoins. In fact, there's already a market argument that "ETH today is where BTC was last year," and there's some truth to this. While a full-scale altcoin boom may be difficult to recreate, there are still opportunities for a structural altcoin bull market, which relies on investors' instincts. Fortunately, another exciting event is imminent. The US Department of Labor's July non-farm payroll figures showed significantly lower-than-expected growth, and the unemployment rate rose slightly, significantly increasing the likelihood of an interest rate cut. On August 9th, Federal Reserve Vice Chair for Supervision Michelle Bowman delivered two key messages in her latest speech: she supports three interest rate cuts this year and will host a community bank conference on October 9th.
According to CME's "Federal Reserve Watch" data, the probability of the Federal Reserve keeping interest rates unchanged in September is 11.6%, and the probability of a 25 basis point rate cut is 88.4%.
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