$12.5 Trillion in Retirement Funds? Trump Supports Cryptocurrency in 401(k) Plans?

By Karen Z, Foresight News

A battle for $12.5 trillion in retirement funds is about to begin.

This policy, which aims to allow alternative assets such as private equity, real estate, and cryptocurrencies to enter 401(k) retirement accounts, is not only a key step for the Trump administration to reshape capital market rules, but also reflects the deeper logic of the U.S. financial industry.

Trump to allow alternative assets like cryptocurrencies into 401(k) plans

On August 7, Bloomberg reported that US President Trump will sign an executive order on Thursday aimed at allowing private equity, real estate, cryptocurrencies and other alternative assets to enter the approximately $12.5 trillion 401(k) plan.

Bloomberg News, citing a person familiar with the matter who requested anonymity before the order's formal issuance, said the order will direct the Labor Department to review guidelines for alternative asset investments in retirement plans governed by the Employee Retirement Income Security Act of 1974. The department will also be tasked with clarifying the government's fiduciary responsibility for offering asset allocation funds that include alternative assets.

Of even greater note is the establishment of a cross-departmental coordination mechanism. Trump has instructed the Secretary of Labor to collaborate with the Treasury Department, the Securities and Exchange Commission (SEC), and other agencies to determine whether rule changes are necessary to facilitate this work. Trump specifically requested the SEC to facilitate access to alternative assets for participants in self-managed retirement plans.

This multi-institutional coordinated directive is clearly intended to break through existing regulatory barriers and clear the way for alternative assets to enter the retirement market on a large scale.

What is a 401(k) plan?

The US 401(k) plan isn't a traditional retirement fund plan. Instead, it's an employer-sponsored retirement savings plan that allows employees to choose to have their employer contribute a portion of their salary to a personal account within the plan for retirement savings. In addition, employers typically match contributions. Funds can be invested in low-risk assets such as mutual funds and stocks.

In 2025, employees can contribute up to $23,500 annually. Those 50 and older can add an additional $7,500, and those 60-63 can contribute up to $11,250. Employer matching contributions vary by plan. The maximum total employee and employer contribution is $70,000 (alternative calculations may apply). Early withdrawals may incur a 10% penalty (unless certain exceptions are met), and withdrawals after retirement are taxed as ordinary income.

How big is the 401(k) fund? How does it impact crypto?

401(k) plans are the most prevalent employer-sponsored retirement savings plans in the United States. According to a report released by the Investment Company Institute (ICI) in June of this year, as of March 31, 2025, total retirement assets in the United States will reach $43.4 trillion (34% of total U.S. household financial assets), of which $16.8 trillion will be held in individual retirement accounts (IRAs). Americans hold $12.2 trillion in defined contribution (DC) retirement plans offered by all employers, of which $8.7 trillion is held in 401(k) plans.

As for 401(k) plans, mutual funds managed $5.3 trillion in assets at the end of March, representing 61% of total 401(k) assets. Equity funds were the most common type of fund in 401(k) plans, holding $3.2 trillion (36.7%), followed by hybrid funds, which held $1.4 trillion.

It's unclear whether the new executive order will restrict the proportion, types, or currencies of cryptocurrency investments. However, if the policy were implemented, assuming 1% of the $8.7 trillion in 401(k) funds were to flow into the crypto market, it would generate $87 billion in inflows. If all of this were invested in Bitcoin, it would generate demand for 748,000 BTC. If all of this were invested in Ethereum, the demand would be approximately 22.6 million BTC.

Dual drive of politics and capital

This move represents a continuation and escalation of Trump's economic policies. According to Bloomberg, during Trump's first term, the Department of Labor issued a similar policy allowing retirement plans to include private equity, which was later rescinded by the Biden administration. Trump has now reinstated it, expanding its scope and attempting to clear obstacles through executive orders and coordination among multiple regulatory agencies.

Trump's move isn't simply an economic decision; it's also an attempt to garner support from Wall Street. Private equity and hedge funds have long been significant donors to the Republican Party, and relaxing 401(k) investment restrictions means these institutions will receive a steady influx of funds over the long term. Furthermore, Trump has recently frequently voiced his support for cryptocurrencies, proposing the establishment of a Strategic Bitcoin Reserve and a Digital Asset Stockpile. This policy directly addresses the core demand of the crypto community: the acceptance of digital assets into the mainstream financial system.

Opening Pandora's Box of Retirement Funds

The core of this executive order is to break the investment boundaries of traditional retirement accounts. Under the Employee Retirement Income Security Act of 1974, US 401(k) plans have long been dominated by traditional assets such as stocks and bonds, while alternative assets have been excluded due to their illiquidity and complex valuations.

Supporters see this as a process of "democratization" of the capital market, believing that it will give the working class the opportunity to share in the dividends of economic growth, while injecting long-term and stable funds into the alternative asset industry and providing an opportunity for emerging assets such as cryptocurrencies to become mainstream.

But for the working class, the executive order is both an opportunity to "break down investment barriers" and a challenge of "risk spillover."

The essential nature of retirement accounts is to preserve and increase value, but the high risk of alternative assets fundamentally conflicts with this. These characteristics naturally conflict with the liquidity needs and risk tolerance of retirement funds. Most working-class individuals lack financial expertise and struggle to identify the true risks of their assets. They may rely on "packaged products" recommended by their employers or financial institutions. Driven by profit, these institutions may tend to exaggerate returns and downplay risks, leading working-class individuals to passively bear excessive risks amidst information asymmetry.

US Crypto Policy Combination

The Trump administration has recently been sending out friendly signals intensively, establishing the first White House AI and cryptocurrency director, listing cryptocurrency as a national priority, establishing a strategic Bitcoin reserve, hosting "Cryptocurrency Week", signing the stablecoin bill "GENIUS Act" and releasing the "Strengthening U.S. Leadership in Digital Financial Technology" report, forming a set of policy combinations.

The projects or companies led by his family members, such as World Liberty Financial (WLFI) and American Bitcoin, and the social media platform Truth Social founded by Trump himself, which plans to launch utility tokens, have cast a shadow of conflict of interest on this policy change.

It is worth noting that several states in the United States have previously proposed draft crypto reserve bills, planning to authorize the investment of a portion of retirement funds, retirement systems or announced funds including retirement funds in Bitcoin. Most states limit this investment ratio to 10%, but most bills have been rejected or are at a standstill due to recess.

The White House President's Task Force on Digital Asset Markets, in a report titled "Strengthening U.S. Leadership in Digital Financial Technologies," released in late July, also explored state-level cryptocurrency regulation. Financial services agencies in some states have applied state money transmitter laws to digital asset custodians and trading platforms, requiring intermediaries to register as money transmitters to serve clients located in the state. Some states exclude digital asset transactions from money transmitter laws, meaning companies specializing in digital asset transactions may not be subject to licensing requirements. Other states have established specialized regulatory regimes for digital assets. The report, in discussing the division of regulatory authority, also noted that federal law should preempt state law and unify the applicability of securities and commodities regulations.

summary

As 401(k) accounts evolve from simple portfolios of stocks and bonds to complex products encompassing private equity and cryptocurrencies, financial literacy will become a key variable in determining investment success. Whether the regulatory system can establish effective firewalls to prevent profiteering and systemic risks will be the ultimate test of the governance capacity of the US capital market.

Facing the huge pie of 12.5 trillion US dollars, all participants are waiting for the final outcome of this capital game.