US President Donald Trump recently opened the door for cryptocurrencies and other alternative assets inside 401(k) retirement accounts. The move came as the White House attempts to align long-term household savings with one of today’s fastest-growing asset classes. With nearly $12.5 trillion held in 401(k)s, the potential inflows into Bitcoin, Ethereum, and tokenized assets could dwarf the ETF (exchange-traded fund) boom and permanently reshape markets. Is Crypto in 401(k)s A Retirement Revolution—or an Accident Waiting to Happen? While the headline sounds bullish for crypto, the fine print raises difficult questions. From lawsuits against fiduciaries to volatility risks, valuation challenges, and the specter of scams entering retirement offerings, Trump’s bold push could be a double-edged sword. With these in mind, experts point out that the move may benefit institutions far more than everyday savers. So, what could go wrong? Institutional investors like pensions and endowments have long tapped into private equity, hedge funds, and alternatives. However, the average worker’s retirement account has been confined mostly to stocks and bonds. Trump’s order marked a radical departure from this mode of operation. Supporters say it’s long overdue, and that crypto in 401ks is way bigger than the ETFs. “In the US, roughly 100 million Americans have a retirement investment vehicle known as a 401(k)… In aggregate, this is ~$12T in assets with ~$50B of new capital flowing in every two weeks,” argued Tom Dunleavy, head of venture at Varys Capital. Dunleavy estimates that even a modest 1% allocation could add $120 billion in new crypto flows, with 5% potentially unlocking $600 billion. More importantly, these wouldn’t be one-off ETF-style purchases, but autopilot inflows that repeat every paycheck cycle. Yet critics warn that retirement investing is not the same as day trading or VC-style risk-taking. According to Economist Alicia Munnell, a former US Assistant Secretary of the Treasury for Economic Policy, it is a terrible idea. “Bitcoin in 401(k)s is a terrible idea. Participants don’t understand the product, it’s a speculative and volatile investment, straying from traditional investments is unlikely to enhance returns, and it’s probably not a prudent option for 401(k)s,” Munnell articulated. That tension, between the potential for generational upside and the risk of widespread misallocation, sits at the heart of the debate. Fiduciary Nightmares and Legal Risks Under US law, fiduciaries overseeing 401(k) plans must act prudently and in the best interest of participants. That responsibility becomes thornier when dealing with volatile, hard-to-value assets. The Department of Labor has previously warned that fiduciaries could face lawsuits for exposing retirement savers to crypto. “The only way it gets there is if Blackrock adds IBIT to their target date fund. Full stop. Even self-directed brokerage windows, my clients ask if there’s a way to prohibit crypto because they don’t want the legal liability. It all comes back to being sued,” a pension consultant explained the industry’s hesitancy. This concern may explain why adoption could be slow despite Trump’s order unless Congress adjusts ERISA (Employee Retirement Income Security Act) laws or introduces protections under a SECURE 3.0 bill. Otherwise, plan administrators could be caught between regulatory permission and legal exposure. Financial Literacy and the Volatility Problem Another sticking point is that most 401(k) investors barely rebalance their portfolios. Vanguard reports that 84% of participants use target-date funds, and only 1% of those investors made any trades in 2024. That means once crypto is slotted into default allocations, millions could be passively exposed without understanding what they hold. For a patient investor, that may sound fine. However, for a retiree nearing age 65, a 70% Bitcoin drawdown could be catastrophic. Critics on X are already sounding alarms: Now people will be able to use their 401k to buy cryptoRemember this: It will be the ultimate legal theft in Crypto historyPeople who have no idea about investments investing in risk assets can't end well.Warn everybody you can to not be greedy! — Wüsten (@KriegVII) August 13, 2025 Wall Street Wins, Main Street Risks? Another critique is that the order could enable Wall Street firms to scoop up trillions in new fees. In other words, while democratization is marketed as such, the risk is that institutional players reap the rewards while retail bears the losses. “Your 401(k) could soon offer: – Private equity funds – Hedge fund strategies – Real estate partnerships – Venture capital deals. Higher potential returns? Yes. Higher risk of losing your retirement? Also yes. Meanwhile, the 401(k) changes could be a massive wealth transfer. Private equity firms stand to gain trillions in new investment capital. Average Americans get ‘access’ to exclusive investments. But who really benefits when Wall Street gets your retirement money?” Ricardo, an X user, argued. Could Scams Slip Through? Meanwhile, the US has no shortage of fraudulent crypto schemes. If plan administrators struggle to differentiate compliant products from risky tokens, retirement savings could funnel into unsound projects. Without airtight safeguards, including self-directed crypto options, may open the door to scams within retirement accounts. Even regulated offerings like private equity or tokenized real estate have valuation opacity. Bloomberg warns that private equity vehicles trade at 70% higher volatility than global stocks and at discounts of up to 30% to net asset value. If such assets are bundled into 401(k) accounts, savers may be more exposed than they realize. Liquidity, Innovation, and New Products As The Bullish Case Still, it’s not all doom. Fund analysts like David Cohne see a middle path, pushing the idea of more crypto mutual funds to front-run the momentum. “Fund firms could get ahead of the President’s executive order… by launching more crypto mutual funds, which would be easier to slot into retirement plans,” Cohne stated. Bloomberg ETF analyst Eric Balchunas agrees, noting that crypto mutual funds could come in to serve 401(k)s as long as ETFs do not intertwine. Interesting take here: we could see a flurry of bitcoin/crypto mutual funds launched to serve 401k plans given ETFs generally don’t work inside those plans. https://t.co/8JgjWaTnrr — Eric Balchunas (@EricBalchunas) August 20, 2025 Similarly, Ryan Rasmussen of Bitwise outlined the upside, noting that a 10% allocation could bring up to $800 billion into Bitcoin. This means that even smaller percentages would create a persistent, mechanical bid that could influence the market. Moreover, Trump’s order could accelerate financial innovation, such as crypto index funds, lower-volatility strategies, and yield-bearing compliant products. Such initiatives would broaden access without throwing retirees into the deep end. The bigger question is whether the risks outweigh the benefits. For Millennials and Gen Z, who are comfortable with digital assets and years away from retirement, crypto allocations may make sense. For older savers, however, the consequences of a mistimed allocation could be devastating. Even Trump’s order may prove fragile, given that executive orders lack permanence, and meaningful adoption may not arrive until 2026. Forbes noted that crypto may be “coming for the 401k market,” but mass adoption will depend on how plan managers interpret their fiduciary duty. Expert Shares Guardrails That Could Make Crypto in 401(k)s Work Not all experts believe Trump’s order spells disaster. Margaret Rosenfeld, Chief Legal Officer at Everstake and a veteran of securities law, argues that bringing crypto into retirement accounts responsibly will require more than adding Bitcoin as a new investment option. “It’s about updating the rules, technology, and safeguards so digital assets fit seamlessly into the retirement system,” she told BeInCrypto. Rosenfeld points to three priorities: First, regulators should set clear standards for what qualifies as a “prudent” digital asset. This entails benchmarks for liquidity, custody, and cybersecurity so fiduciaries can document due diligence. Second, custody and staking rules must be modernized. This would allow staking inside 401(k)s while ensuring insurance protections and sensible tax treatment. Finally, the retirement system’s outdated plumbing must be upgraded. To handle on-chain events like forks or airdrops, the SEC and Department of Labor must work from the same rulebook. For Rosenfeld, the stakes are generational. Younger workers already opt out of 401(k)s, forfeiting long-term tax benefits. If crypto remains outside the system, so will they. But if integrated with safeguards, digital assets could bring them back, blending innovation with the protections of traditional retirement plans. “If we succeed, the next generation of savers can enjoy the best of both worlds: the innovation of digital assets and the guardrails of a 401(k)” she concluded. The post What Could Go Wrong With Trump’s Plan to Put Crypto in 401(k)s? appeared first on BeInCrypto.