Bitcoin 401(k)s Excite Investors but Spark Warnings Over Risk

U.S. investors can now add Bitcoin to their 401(k) retirement plans following an executive order signed by President Donald Trump on August 7. The move has been hailed as a landmark step for crypto adoption, but financial professionals caution that it may expose savers to significant risks.

Opening Retirement Plans to Crypto

The order, titled “Democratizing Access to Alternative Assets for 401(k) Investors”, directs U.S. regulators to expand retirement-plan access to a wider range of asset classes, including private equity, real estate, commodities, and crypto investment products. Given that 401(k) plans held $8.9 trillion in assets as of 2024, the policy could channel a vast amount of new capital into digital assets, potentially boosting demand and prices.

Industry voices are already optimistic. Bitwise’s André Dragosch suggested that Bitcoin could reach $200,000 by year-end, while Compass Mining’s CJ Burnett argued that adoption within 401(k)s would provide stability through steady inflows of capital.

A High-Risk Bet for Retirement Savers

Despite the bullish sentiment, critics warn that crypto’s volatility makes it an unsuitable fit for retirement plans. Ary Rosenbaum, an attorney specializing in retirement law, argued that Bitcoin’s history of steep drawdowns could expose plan sponsors to lawsuits. “When Bitcoin drops 40% in a week — and it will — plaintiffs’ attorneys will come knocking,” he said, calling the asset a “fiduciary minefield.”

Concerns also extend to fees. Traditional 401(k) funds average just 0.26% in costs, while many alternative assets and certain Bitcoin ETFs charge fees exceeding 1%. Higher costs, combined with liquidity and tax complexities, could significantly erode returns over time.

Calls for Regulatory “Plumbing Upgrades”

Some experts believe regulatory modernization could help mitigate the risks. Margaret Rosenfeld, chief legal officer at staking provider Everstake, emphasized that the retirement system was designed decades ago for stocks and bonds, not for blockchains. She suggested updated recordkeeping systems capable of handling forks, airdrops, and real-time volatility, as well as clear standards on liquidity, custody, and cybersecurity.

“Managed properly, crypto in 401(k)s could diversify retirement portfolios and bring greater transparency,” Rosenfeld argued. But without upgrades, she said, the risks may outweigh the benefits.

A Divisive Move for Retirement Planning

The debate reflects broader tensions in U.S. crypto policy. Supporters see retirement-plan integration as a milestone that will legitimize digital assets within mainstream finance. Skeptics see it as a dangerous experiment with workers’ financial lifelines.

Rosenbaum was blunt in his assessment: “Crypto can diversify a portfolio, but it doesn’t belong in a 401(k). Use a brokerage account, a Roth IRA, or discretionary income — but not the plan designed to secure your retirement.”

For now, the executive order opens a powerful new channel for crypto investment. Whether it strengthens retirement portfolios or exposes them to unnecessary risk may only become clear in the years ahead.