Author: KarenZ, Foresight News

A capital competition surrounding $12.5 trillion in retirement funds is about to begin.

This policy, aimed at allowing 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 in reshaping capital market rules but also reflects the deep logic of the American financial industry.

Trump to Allow Alternative Assets like Cryptocurrencies in 401(k) Plans

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

Bloomberg cited an anonymous source familiar with the matter who revealed that the executive order will instruct the Department of Labor to reassess the guidelines for alternative asset investments in retirement plans governed by the Employee Retirement Income Security Act of 1974. The department will also clarify the government's fiduciary responsibility stance regarding the provision of asset allocation funds that include alternative assets.

More notably, the establishment of a cross-departmental collaboration mechanism is worth attention. Trump has directed the Labor Secretary to collaborate with the Treasury Department, the U.S. Securities and Exchange Commission (SEC), and other agencies to assess whether rule modifications are needed to promote this initiative, specifically requesting the SEC to provide a pathway for participants in self-directed retirement plans to access alternative assets.

This multi-agency collaborative directive is clearly aimed at breaking through existing regulatory barriers to facilitate the large-scale entry of alternative assets into the retirement market.

What is a 401(k) Plan?

The U.S. 401(k) plan is not a traditional retirement fund plan but a retirement savings plan offered by employers that allows employees to choose to have a portion of their wages deposited into individual accounts under the plan for retirement savings. Additionally, employers typically provide a certain percentage of matching contributions. Funds can be invested in low-risk assets such as funds and stocks.

In 2025, employees can contribute up to $23,500 annually, with those aged 50 and above allowed an additional $7,500, and those aged 60 to 63 can contribute a maximum of $11,250. Employer matching contributions vary by plan. The total contribution limit for employees and employers is $70,000 (other calculation methods may also apply). Early withdrawals may incur a 10% penalty (unless specific exceptions are met), and withdrawals after retirement are taxed as ordinary income.

How Big is the 401(k) Market? What Impact Will It Have on Crypto?

The 401(k) plan is the primary employer-sponsored retirement savings plan in the U.S. According to a report released by the Investment Company Institute (ICI) in June this year, as of March 31, 2025, the total retirement assets in the U.S. amounted to $43.4 trillion (34% of total U.S. household financial assets), with individual retirement account (IRA) assets totaling $16.8 trillion. Americans hold $12.2 trillion in all employer-sponsored defined contribution (DC) retirement plans, of which $8.7 trillion is held in 401(k) plans.

As of the end of March, the total assets managed by mutual funds in 401(k) plans amounted to $5.3 trillion, accounting for 61% of the total 401(k) plan assets. Equity funds are the most common type of fund in 401(k) plans, holding $3.2 trillion (36.7%), followed by hybrid funds, which hold $1.4 trillion.

It is currently unknown whether the new executive order will limit the proportion, types, or currencies of investments in cryptocurrencies. However, if the policy is implemented and 1% of the $8.7 trillion in 401(k) funds flows into the crypto market, it would result in an influx of $87 billion. If all of this were used to purchase Bitcoin, it would create a demand for 748,000 BTC, while the demand for Ethereum would be approximately 22.6 million coins.

Dual Drivers of Politics and Capital

This initiative is a continuation and upgrade of Trump's economic policy. According to Bloomberg, during Trump's first term, the Department of Labor introduced a similar policy allowing retirement plans to include private equity, which was later rescinded by the Biden administration. Now, Trump is restarting and expanding the scope, attempting to clear obstacles through executive orders and collaboration among multiple regulatory agencies.

Trump's actions are not merely economic decisions; they also aim to continue garnering support from Wall Street. Private equity and hedge funds have long been significant financial backers of the Republican Party. Easing 401(k) investment restrictions means these institutions will receive a stable influx of long-term capital. Additionally, Trump has recently expressed frequent support for cryptocurrencies and proposed establishing a Strategic Bitcoin Reserve and a Digital Asset Stockpile. This policy directly responds to the core demands of the crypto community—integrating digital assets into the mainstream financial system.

Opening the "Pandora's Box" of Retirement Funds

The core of this executive order lies in breaking the investment boundaries of traditional retirement accounts. Under the Employee Retirement Income Security Act of 1974, U.S. 401(k) plans have long been dominated by traditional assets such as stocks and bonds, while alternative assets have been kept out due to their poor liquidity and complex valuation.

Supporters view this as a process of "democratizing" the capital market, believing it will give the working class a chance to share in the economic growth dividends, while also injecting long-term stable capital into the alternative asset industry and providing an opportunity for the mainstreaming of emerging assets like cryptocurrencies.

However, for the working class, this executive order presents both an opportunity to "break investment barriers" and a challenge of "risk spillover."

The essential attribute of retirement accounts is to preserve and increase value, while the high-risk nature of alternative assets fundamentally conflicts with this. These characteristics create a natural contradiction with the liquidity needs and risk tolerance of retirement funds. Most working-class individuals lack financial expertise and may struggle to identify the true risks of assets, potentially relying on "packaged products" recommended by employers or financial institutions. Institutions, driven by profit motives, may tend to exaggerate returns and downplay risks, leading to the working class passively bearing excessive risks in an information asymmetry.

U.S. Crypto Policy Combination

The Trump administration has recently released a series of friendly signals, establishing the first White House AI and cryptocurrency director, listing cryptocurrencies as a national priority, creating a Strategic Bitcoin Reserve, hosting "Cryptocurrency Week," signing the stablecoin legislation "GENIUS Act," and publishing the report "Strengthening U.S. Leadership in Digital Financial Technology," forming a set of policy combinations.

Moreover, projects or companies led by his family members, such as World Liberty Financial (WLFI) and American Bitcoin, along with Trump's own social media platform Truth Social planning to launch utility tokens, further cast a shadow of vested interests over this policy change.

It is noteworthy that several states in the U.S. have previously proposed cryptocurrency reserve bill drafts, planning to authorize a portion of retirement funds, retirement systems, or public funds that include retirement funds to invest in Bitcoin, with most states limiting this investment proportion to 10%. However, most of these bills have been rejected or are stalled due to recess.

The U.S. White House President's Digital Asset Market Working Group released the report "Strengthening U.S. Leadership in Digital Financial Technology" at the end of July, which also explored the state-level cryptocurrency regulatory situation. Some state financial service institutions have applied state money transfer laws to digital asset custodians and trading platforms, requiring intermediaries to register as money transfer institutions to provide services to clients in those states. Some states have excluded digital asset trading from money transfer laws, meaning companies engaged in digital asset trading in these states may not be subject to licensing requirements. Other states have established specific regulatory systems for digital assets. The report also pointed out that federal law should take precedence over state law when discussing the division of responsibilities among regulatory agencies, unifying the applicability of securities and commodities-related regulations.

Conclusion

As 401(k) accounts evolve from simple stock and bond portfolios to complex products that include private equity and cryptocurrencies, financial literacy will become a key variable determining investment success or failure. Whether the regulatory system can establish effective firewalls to prevent conflicts of interest and systemic risks will be the ultimate test of the governance capacity of the U.S. capital market.

In the face of the massive $12.5 trillion pie, all participants are waiting for the final outcome of this capital game.

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