Author: Karen Z, Foresight News
A capital 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 in the Trump administration's reshaping of capital market rules but also reflects the deeper logic of the US financial industry.
Trump will allow alternative assets such as cryptocurrencies to enter 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) plans. Bloomberg News, citing a person familiar with the matter who requested anonymity before the executive order's formal issuance, revealed that the order directs the Department of Labor 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 responsible for clarifying the government's fiduciary responsibility regarding asset allocation funds that include alternative assets. Of particular note is the establishment of an interagency coordination mechanism. Trump instructed the Secretary of Labor to work with the Treasury Department, the Securities and Exchange Commission (SEC), and other agencies to determine whether rule changes are necessary to facilitate this work. The order specifically requests that the SEC facilitate access to alternative assets for participants in self-managed retirement plans. This multi-agency directive is clearly intended to break down existing regulatory barriers and clear obstacles for the large-scale entry of alternative assets into the retirement market. What is a 401(k) plan? A 401(k) plan in the United States isn't a traditional retirement fund. 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, the employer typically matches the contribution. 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 aged 50 and over can add an additional $7,500, and those aged 60-63 can contribute up to $11,250. The employer matching contribution varies 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)? And what impact does it have on crypto? The 401(k) plan is the most important employer-sponsored retirement savings plan 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 be $43.4 trillion (accounting for 34% of total U.S. household financial assets), of which total assets in individual retirement accounts (IRAs) will be $16.8 trillion. 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 of the end of March, mutual funds managed $5.3 trillion in 401(k) plan assets, 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 at $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 allocated to the crypto market, it would generate $87 billion in inflows. If all of this were invested in Bitcoin, it would generate a demand for 748,000 BTC. If all of this were invested in Ethereum, the demand would be approximately 22.6 million BTC. Driven by both 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 and expanded the scope of this policy, attempting to clear obstacles through executive orders and coordination among multiple regulatory agencies. Trump's move is not simply an economic decision; it also seeks to garner support from Wall Street. Private equity and hedge funds have long been important donors to the Republican Party, and easing 401(k) investment restrictions means these institutions will receive a steady influx of long-term funds. 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: to integrate digital assets into the mainstream financial system. Opening a Pandora's Box of Retirement Funds The core of this executive order is to break down 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 like stocks and bonds, while alternative assets have been excluded due to illiquidity and complex valuations. Supporters see this as a step toward the "democratization" of the capital markets, arguing that it will allow working people to share in the dividends of economic growth, inject long-term, stable capital into the alternative asset sector, and provide a mainstream opportunity for emerging assets like cryptocurrencies. However, for working people, this executive order presents both an opportunity to "break down investment barriers" and a challenge to "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 create a natural 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 risk amidst information asymmetry. The Trump administration has recently been sending a flurry of friendly signals, including appointing the first White House AI and cryptocurrency director, designating cryptocurrency as a national priority, establishing a strategic Bitcoin reserve, hosting "Cryptocurrency Week," signing the GENIUS Act, and releasing the report "Strengthening U.S. Leadership in Digital Financial Technologies." These policies have formed a comprehensive package. Projects and companies led by family members, such as World Liberty Financial (WLFI) and American Bitcoin, and plans by Trump's own social media platform, Truth Social, to launch utility tokens, further cast a shadow of conflict of interest on this policy change. It's worth noting that several US states have previously proposed draft crypto reserve bills, which would authorize retirement funds, retirement systems, or declared funds containing retirement funds to invest a portion in Bitcoin. Most states would limit this investment to 10%, but most bills have been rejected or remain stalled due to recess. The White House President's Task Force on Digital Asset Markets, in its report "Strengthening American Leadership in Digital Financial Technology," released in late July, also explored state-level cryptocurrency regulation. Financial services agencies in some states have already applied state money transmitter laws to digital asset custodians and trading platforms, requiring intermediaries to register as money transmitters to serve customers in the relevant states. 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 systems for digital assets. The report, in discussing the division of regulatory responsibilities, also states that federal law should preempt state law and unify the applicability of securities and commodities regulations.
Summary
As 401(k) accounts evolve from simple stock and bond portfolios 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.
With a massive $12.5 trillion pie in the balance of power, all participants await the final outcome of this capital game.
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