Trump is establishing a pension fund, investing in cryptocurrencies such as Bitcoin.
The private retirement system in the US, known as 401(k), is set for a significant change following an executive order issued by President Donald Trump. The order aims to open up this trillions-dollar system to riskier investments, including digital currencies and real estate.
Until now, investments in digital currencies and real estate in the 401(k) system have been prohibited due to the threat of lawsuits from investors in case of losses. However, Trump's executive order could potentially alter these guidelines, giving employers and investment managers more discretion in offering these alternative options.
The 401(k) system, which allows employees to set aside a portion of their gross income through their employers as savings for their retirement, has primarily been invested in government bonds or stock market index funds. While these investments yield a stable return, they do not offer high value increases.
Allowing digital currencies as an investment option in 401(k) retirement accounts could bring about several benefits. Diversification is one such advantage, as cryptocurrencies offer a new asset class that could diversify retirement portfolios beyond traditional stocks, bonds, and mutual funds. Digital currencies have shown periods of substantial appreciation, which could boost retirement savings over time. Furthermore, allowing cryptocurrencies alongside private equity and real estate broadens investment opportunities for everyday savers.
However, these changes also introduce considerable risks. Cryptocurrencies are highly volatile and can expose retirement accounts to significant fluctuations and potential losses. Regulatory uncertainty is another concern, as crypto assets face ongoing regulatory changes, introducing unpredictability that could impact investments negatively. Digital assets are also vulnerable to hacking, fraud, and technological failures, which could jeopardize retirement savings. Additionally, cryptocurrencies and other alternative assets may have limited liquidity and less-transparent valuations, complicating portfolio management and redemption timing.
Some critics worry that the executive order may serve political or self-enrichment interests tied to cryptocurrency advocates, raising questions about fiduciary motivations. Trump's family, who are also involved in the business of digital tokens, had previously campaigned to bring digital currencies more into everyday finance.
Financial investors and providers of digital currencies have long had an interest in retirement savings. The total amount invested in 401(k) accounts is approximately $12.5 trillion, according to Bloomberg. The potential benefits of allowing digital currencies as an investment option include higher returns and increased diversification. However, investors and plan fiduciaries should weigh these factors carefully before including digital currencies in retirement accounts, considering the associated risks of volatility, regulatory uncertainty, cybersecurity, and fiduciary responsibility.
These changes follow Trump’s executive order and related regulatory updates, including the Employee Benefits Security Administration’s (EBSA) May 2025 rescinding of prior guidance that discouraged adding cryptocurrencies to 401(k) plans, effectively allowing fiduciaries more discretion in offering crypto options.
Investors and financial providers, taking keen interest in retirement savings, see the potential benefits of allowing digital currencies as an investment option in 401(k) accounts. These benefits include higher returns and increased diversification, such as the ability to invest in digital currencies and real estate, which were previously prohibited.
However, the introduction of digital currencies into the 401(k) system also brings considerable risks, including volatility, regulatory uncertainty, cybersecurity threats, limited liquidity, and less-transparent valuations, all of which should be carefully considered by investors and plan fiduciaries when making decisions about adding these assets to retirement accounts.
