Trillions of dollars in US pensions flowing into Crypto Assets? What are the risks of this gamble?

Author | FinTax Owen

On August 7, Eastern Time, U.S. President Trump signed an executive order Democratizing Access to Alternative Assets for 401(k) Investors at the White House, directing the Treasury Department, Labor Department, and Securities and Exchange Commission (SEC) to initiate rule changes to include cryptocurrencies, real estate, private equity, and other "Alternative Assets" within the investment scope of 401(k) pensions. This news was like a thunderbolt, quickly shaking the global financial markets — it not only has the potential to unlock up to $8.7 trillion in pension pools but is also seen as a critical step for crypto assets moving from the fringe into the mainstream financial system.

Despite the White House claiming that this move is aimed at "expanding access for ordinary investors to diversified assets," a core question arises: does this open a new chapter in wealth appreciation for the retirement futures of Americans, or is it a reckless nationwide gamble?

1. 401(k) Plan: The Cornerstone of the US Pension System

To understand the importance of this action, one must first clarify the significance of 401(k) in the U.S. retirement security system. The U.S. pension system consists of three pillars: the first pillar is the government-operated mandatory Social Security, which provides basic pensions to retirees on a monthly basis; the second pillar is employer-sponsored retirement savings plans, among which 401(k) is the most common, accumulating funds through employee pre-tax contributions and employer matching contributions, with limited investment options provided by employers; the third pillar is Individual Retirement Accounts (IRA), voluntarily established by individuals, which have a broader range of investment options, and some types of IRAs have long allowed investments in cryptocurrencies.

In the second pillar, the 401(k) is the most representative employer retirement plan, with most employers supporting employee participation and accumulating funds through payroll deductions and matching contributions to achieve compound growth. In addition to the 401(k), there are also plans such as the 403(b) for employees of public education institutions and some non-profit organizations. As of the first quarter of 2025, the market size of the American 401(k) has exceeded $8.7 trillion, serving as the core保障 for the retirement lives of tens of millions of American families.

The biggest difference between IRA and 401(k) as voluntary savings plans compared to mandatory government social security is the investment autonomy: both types of accounts enjoy tax-deferred or tax-exempt treatment on investment returns, but IRA has a wider range of investments and can directly hold various assets (including cryptocurrencies in certain types); the investment scope of 401(k) is long-term restricted, with most funds directed towards low-risk products packaged by employer-selected asset management firms (such as mutual funds, bonds, etc.), rather than directly holding spot assets. Trump's reform this time is precisely aimed at loosening the investment restrictions of 401(k), creating institutional conditions for high-volatility assets such as cryptocurrencies to enter mainstream retirement investment portfolios.

2. From Strict Prohibition to Release: A Turning Point in Regulatory Ideas and Market Realities

For a long time, the U.S. 401(k) plan has strictly excluded high-risk assets such as cryptocurrencies, primarily to protect the safety and stability of retirement savings. The high volatility of these assets is fundamentally at odds with the goal of steady growth for pensions. Regulators are concerned that ordinary investors lack the capacity to bear risks and the professional judgment needed; once the market experiences severe fluctuations, it will directly impact their retirement security. At the same time, financial institutions face additional costs and risks related to custody, valuation, and compliance, which also encourages policies to remain tight in the long term.

The Trump administration's signing of the executive order to ease restrictions is not a spur-of-the-moment policy decision, but rather the result of multiple overlapping motivations: on one hand, it responds to the public's demand for high-yield channels in an environment of low interest rates and high inflation, fulfilling the campaign promise of "deregulation"; on the other hand, it is a realization of political capital — the cryptocurrency industry supported Trump's campaign, and his family also has investments in the crypto space; the deeper context is that the crypto market is no longer a marginal experiment, but is gradually being viewed as a mainstream asset under the push of institutional investment, ETF approvals, and the acceleration of global compliance processes.

It is worth noting that this policy is not only aimed at cryptocurrencies but also targets a broader range of "Alternative Assets," the official definition of which includes private equity, real estate, commodities, and digital currencies. This means that the original intention of the policy is to comprehensively relax investment restrictions to expand the options available to individual investors, catering to society's enthusiasm for pursuing high-yield assets.

It can be said that this shift from "prohibition" to "release" not only reflects the loosening of the U.S. regulatory mindset but also mirrors the changes in the capital market landscape and the reshaping of the political ecology.

3. Far-reaching impact: A gamble may begin from here.

Including cryptocurrencies and other alternative assets in the 401(k) investment scope means that the U.S. government is embarking on an unprecedented high-risk experiment in its retirement system. Once pension funds enter the crypto market on a large scale, it will not only significantly enhance market liquidity and price stability but also create a binding of interests between the government and the crypto market: when the retirement savings of millions of Americans are linked to crypto assets, the government will have to consider how to maintain market stability in policy-making. This deep binding could greatly accelerate the compliance process for cryptocurrencies, forcing regulatory agencies to develop clearer and more comprehensive regulations, thereby enhancing the overall market's maturity, transparency, and credibility, attracting more mainstream institutions and individual investors to participate.

At the same time, deeper political considerations are that interest binding could even grant the continuity of crypto-friendly policies across party changes. It elevates the protection of cryptocurrency from personal or party actions of Trump to a "forced choice" of the government to protect the national property of its citizens — any actions that undermine the crypto market may be seen by voters as "messing with their retirement cheese," thereby triggering a political backlash.

(When your pension is on the chain, do they still dare to say "no"? Image source: created by the author)

However, this gamble is fraught with concerns. The crypto market is notorious for its price volatility, and the cyclical transitions between bull and bear markets often lead to significant asset shrinkage. More critically, structural issues such as fraud, money laundering, and illegal financing still lurk in the market, with some assets lacking transparency and security incidents on trading platforms occurring frequently. If pension funds suffer a severe setback in such an environment, the losses will not only be reflected on the balance sheets but will also trigger a crisis of trust at the societal level — the future security of millions of American families will be directly undermined, and political pressure will quickly transmit to the White House and Congress. At that point, the government may be forced to intervene financially to stabilize the market, resulting in a dual captivity of policy and market.

In other words, this move could both promote the entry of cryptocurrencies into a regulated and institutionalized era, and potentially backfire on policymakers in times of uncontrolled risks, turning this "bold attempt" into a period of reflection and even criticism in history.

4. Another Perspective: The Fiscal Game Behind Tax Deferral

For a long time, the American 401(k) plan has had two modes of tax arrangement: the traditional type adopts "pre-tax contributions, taxed as ordinary income upon withdrawal in retirement," while the Roth type is "after-tax contributions, tax-free withdrawals when qualified" — regardless of the mode, both have the effect of deferring taxes on investment gains, which is also their long-term appeal. Therefore, including cryptocurrency assets within the scope of 401(k) investments does not change these basic tax law rules, but means that this highly volatile asset has entered a compliant "shell" for the first time, allowing investors to bet on the long-term growth of the crypto market while enjoying the tax advantages of the account.

In this framework, the fiscal impact resembles a temporal tax game. For investors choosing the "traditional account," current taxable income decreases, leading to a short-term reduction in government tax revenue, but in the future, during the withdrawal phase, it will be counted as taxable income all at once. This is a typical "release water to raise fish" strategy — exchanging today's returns for a larger tax base decades later. If crypto assets succeed in the long term, the returns realized at retirement may far exceed the current amounts, thus bringing higher tax revenue to the government; conversely, if the market stagnates or the policy environment shifts, the short-term tax sacrifice may result in long-term fiscal shortfalls. This is also the greatest risk and suspense of this move in terms of fiscal policy.