Trillions of pension funds pouring into cryptocurrencies? The beginning of a big gamble

Author: Owen

Recently, US President Trump signed an executive order at the White House, "Democratizing Access to Alternative Assets for 401(k) Investors," directing the Treasury, Department of Labor, and Securities and Exchange Commission (SEC) to initiate rule revisions to include "alternative assets" such as cryptocurrencies, real estate, and private equity in 401(k) retirement plans. This news was like a bolt from the blue, quickly shaking global financial markets. Not only could it potentially leverage an $8.7 trillion retirement fund pool, it was also seen as a key step for crypto assets to move from fringe experiments into the mainstream financial system.

Although the White House claims that this move is aimed at "expanding the accessibility of diversified assets to ordinary investors," a core question has emerged: Is this the beginning of a new chapter in wealth appreciation for Americans' retirement future, or a reckless national gamble?

1. 401(k) Plan: The Cornerstone of the U.S. Retirement System

To understand the significance of this move, we must first understand the importance of 401(k) in the U.S. retirement security system. The US pension system consists of three pillars: the first is government-run, mandatory Social Security, which provides a basic monthly pension to retirees. The second pillar is employer-provided retirement savings plans, of which the 401(k) is the most popular. These plans are funded through pre-tax employee contributions and employer matching contributions, with limited investment options provided by the employer. The third pillar is the Individual Retirement Account (IRA), which is voluntary and offers a wider range of investments. Some IRAs already allow for cryptocurrency investment. Within the second pillar, the 401(k) is the most representative employer-provided retirement plan. Most employers support employee participation, accumulating funds through payroll deductions and matching contributions, allowing for compound growth. In addition to 401(k)s, there are also 403(b) plans for employees of public educational institutions and some nonprofit organizations. As of the first quarter of 2025, the US 401(k) market has exceeded $8.7 trillion, providing a core retirement guarantee for tens of millions of American families. Compared to mandatory government social security, the biggest difference between IRAs and 401(k)s, as voluntary savings plans, lies in investment autonomy: both types of accounts enjoy tax-deferred or tax-free investment returns, but IRAs offer a wider range of investments, allowing for direct holdings of a variety of assets (including some types of cryptocurrency). 401(k)s have long had limited investment scope, with most funds invested in low-risk products (such as mutual funds and bonds) packaged by employer-selected asset management firms, rather than directly holding physical assets. Trump's reforms are aimed at lifting these investment restrictions on 401(k)s, creating institutional conditions for the inclusion of highly volatile assets like cryptocurrency in mainstream retirement portfolios. 2. From Strict Prohibition to Permissiveness: A Shift in Regulatory Philosophy and Market Reality US 401(k) plans have long strictly excluded high-risk assets like cryptocurrencies. The fundamental reason for this is to protect the security and stability of retirement savings. High volatility is inherently at odds with the goal of steady pension growth. Regulators are concerned that ordinary investors lack the risk tolerance and professional judgment to assess their retirement security, and that drastic market fluctuations would directly impact their retirement security. Furthermore, financial institutions face additional costs and risks in custody, valuation, and compliance, which has contributed to the continued tightening of policies. The Trump administration's executive order relaxing restrictions wasn't a whim, but rather the result of multiple drivers: First, it was a response to public demand for higher-yield options amidst low interest rates and high inflation, fulfilling his campaign promise of deregulation. Second, it was a political capital exercise—the crypto industry supported the Trump campaign, and his family has investments in the sector. Furthermore, the underlying reason is that the crypto market is no longer a fringe experiment but is increasingly being recognized as a mainstream asset class, driven by institutional investment, ETF approvals, and accelerated global compliance. Notably, this policy targets not just cryptocurrencies, but a broader category of "alternative assets," officially defined as including private equity, real estate, commodities, and digital currencies. This suggests that the policy's primary objective is to comprehensively relax investment restrictions, expand the options available to individual investors, and cater to society's pursuit of high-yield assets. This shift from strict prohibition to liberalization reflects both a loosening of US regulatory oversight and a shift in the capital market landscape and the reshaping of the political ecosystem. 3. Far-reaching Impact: A High-Risk Gamble May Begin Including alternative assets like cryptocurrencies in 401(k) plans marks the beginning of an unprecedented, high-risk experiment for the US government in retirement planning. Large-scale investment in the crypto market by pension funds will not only significantly enhance market liquidity and price stability but also create a nexus of interests between the government and the crypto market. With the retirement savings of millions of Americans tied to crypto assets, government policymaking will be forced to consider how to maintain market stability. This deep integration could significantly accelerate the regulatory compliance process for cryptocurrencies, forcing regulators to introduce clearer and more comprehensive regulations, thereby enhancing the maturity, transparency, and credibility of the entire market and attracting more mainstream institutional and individual investors. Meanwhile, a deeper political consideration lies in the fact that this binding of interests could even lend crypto-friendly policies continuity across party lines. This elevates the protection of cryptocurrencies from a personal or partisan act by Trump to a "forced choice" by the government to protect national wealth. Any move to weaken the crypto market could be seen by voters as "touching the cheese of retirement funds," triggering a political backlash. However, this gamble is fraught with hidden risks. The crypto market is known for its volatile prices, and its cyclical bull-bear cycles are often accompanied by significant asset drawdowns. More importantly, the market still harbors structural issues such as fraud, money laundering, and illegal financing. Some assets lack transparency, and security incidents on trading platforms are common. If pension funds were to suffer a significant setback in this environment, the losses would not only be felt on paper but would also trigger a crisis of trust at a societal level. The future security of millions of American families would be directly shaken, and political pressure would quickly transmit to the White House and Congress. The government might then be forced to resort to fiscal intervention to rescue the market, creating a double bind between policy and the market. In other words, this move could either propel cryptocurrencies into an era of institutionalization and comprehensive regulation, or it could backfire on policymakers if risks spiral out of control, turning this "bold experiment" into a period of historical reflection and even criticism. 4. Another Perspective: The Fiscal Game Behind Tax Deferral For a long time, US 401(k) plans have had two tax arrangements: the traditional model, which adopts "pre-tax contributions and taxation as ordinary income upon retirement," and the Roth model, which adopts "post-tax contributions and tax-free withdrawals upon qualifying." Both models have the effect of deferring taxation on investment income, which is also their long-term appeal. Therefore, including crypto assets in the 401(k) investment scope does not change these basic tax rules. However, it means that this highly volatile asset has entered a compliant "shell" of tax deferral or tax exemption for the first time. Investors can enjoy the tax advantages of their accounts while betting on the long-term growth of the crypto market.  

Under this framework, the fiscal impact is more like a tax game played over time. For investors choosing a "traditional account," current taxable income will decrease, reducing the government's short-term tax revenue. However, future withdrawals will be included in the taxable income in a lump sum. This is a typical "water-feeding fish" strategy—using today's profit concessions in exchange for a larger tax base decades later. If crypto assets succeed in the long term, the returns realized upon retirement could far exceed the current level, generating higher tax revenue for the government. Conversely, if the market is sluggish or the policy environment shifts, short-term tax sacrifices could result in long-term fiscal losses. This is also the biggest risk and suspense of this move from a fiscal and tax perspective.