On Thursday local time in the U.S., the Financial Times reported that Trump is preparing to open cryptocurrency, gold, and private equity to the $9 trillion U.S. retirement market. According to three insiders, Trump is expected to sign an executive order this week to open alternative investments beyond traditional stocks and bonds for 401k retirement plans. These investments will involve a wide range of asset classes, from digital assets to metals, as well as funds focused on corporate acquisitions, private loans, and infrastructure deals. The insiders indicated that the executive order will instruct regulators to investigate the barriers faced by professionally managed funds incorporating alternative investments for 401k savers.
This policy shift will impact the $8.9 trillion U.S. pension market. Even if only 10% of 401k funds flow into the crypto market, it will inject $870 billion into the current $3.92 trillion global cryptocurrency market, equivalent to a 22.2% market increment. This is not only a significant shift in U.S. financial policy but also a historic turning point in the global digital asset landscape.
What is a 401k (mainstream U.S. pension plan)?
401k is the most common retirement savings tool in the U.S. workplace, allowing employees to invest long-term for retirement under tax benefits. Employees can choose to allocate part of their salary into a traditional 401k (pre-tax contributions, taxed upon retirement) or a Roth 401k (after-tax contributions, tax-free upon retirement) account, and employers typically 'match contributions' at a certain rate. Funds in the account can be invested in various assets, with specific investment options determined by the platform provided by the employer, usually including: equity funds (such as S&P 500 index funds), bond funds, money market funds, and target date funds (which automatically adjust risk based on retirement year).
The range of investment options is determined by the providers of the 401k plans (such as Fidelity, Vanguard, etc.), and individuals cannot trade any securities freely like in an IRA. Regarding withdrawal rules, funds in a 401k account can be withdrawn without penalty after age 59 and a half, but traditional 401k funds are still subject to income tax; if withdrawn before this age, a 10% early withdrawal penalty plus applicable taxes typically apply, unless specific exemptions are met (such as permanent disability, significant medical expenses, court-ordered alimony, first-time home purchase, etc.). In summary, the 401k plan combines tax benefits, employer contributions, and diverse investment channels, making it a core asset accumulation tool in the U.S. retirement system.
Specifically, there had not been a complete ban on pension plans investing in cryptocurrency; however, during the previous administration, the U.S. Department of Labor explicitly warned employers in 2022 to exercise 'extreme caution' in allowing retirement accounts to access crypto assets, believing that their high volatility and speculative nature do not align with the fiduciary duty to serve the best interests of employees, leading many employers to avoid related options. Furthermore, most 401k providers (such as Vanguard and Schwab) have not opened channels for cryptocurrency investments, as the technological access and compliance framework are not mature. Even leading institutions like Fidelity, which have launched crypto account features, require employers to actively enable them, resulting in a very low actual activation rate. Additionally, due to concerns over legal liabilities, employee asset losses, and the long-term security of pensions, most employers are conservative in offering crypto investment options. These factors combined have resulted in a situation where, although legally not prohibited, the practical state of 401k investment in cryptocurrency is 'theoretically feasible but practically limited.'
Now, the executive order will instruct regulators to investigate the barriers faced by professionally managed funds incorporating alternative investments for 401k savers.
Massive capital pool: $8.9 trillion market.
The scale of the U.S. 401k pension market is beyond imagination. As of the third quarter of 2024, the total assets of 401k plans reached $8.9 trillion, serving over 70 million active participants across 715,000 plans. This scale accounts for about 20% of the total $44.1 trillion retirement assets in the U.S., making it the largest defined contribution pension market in the world.
Currently, 401k funds are mainly invested in traditional assets: 66% are in mutual funds, with equity funds dominating, and bond allocations increase with age. The average account balance is $132,300, with younger investors having a higher equity allocation, typically with bond allocations not exceeding 6%.
The current size of the cryptocurrency market is $3.92 trillion, with Bitcoin holding a 60.4% market dominance, valued at approximately $2.37 trillion. Despite its large size, it is still relatively small compared to traditional financial markets. The assets under management for U.S. spot Bitcoin ETFs are about $12.3 billion, with BlackRock's iShares Bitcoin Trust (IBIT) alone accounting for $7 billion, representing 50% of total crypto ETF assets.
If the executive order is signed, how will the market be affected?
Based on detailed market data analysis, if 10% of 401k funds enter the cryptocurrency market, the following impacts will occur:
Scale of capital inflow:
10% of the total assets of 401k = $870 billion, equivalent to 22.2% of the current total market capitalization of cryptocurrency.
36.7% of Bitcoin's market capitalization.
70 times the total assets of all current cryptocurrency ETFs combined.
The influx of large institutional capital will fundamentally change market structure. Bitcoin's market dominance may rise further to 70-75%, with a surge in institutional-grade infrastructure demand, and custodial services and compliance requirements will increase substantially. Initially, this may increase volatility, but in the long term, it will significantly reduce volatility and enhance market depth and stability.
In an ideal model that only considers supply factors, the price of Bitcoin is linearly positively correlated with its market capitalization, with a correlation coefficient of nearly 1. Based on the current market capitalization level of approximately $2.4 trillion, if influenced by a 10% influx of retirement market funds in the future, it could grow to $3 trillion, with prices expected to be in the range of $150,000 to $170,000, with a central estimate of around $160,000. This prediction fully considers the impact of a slight increase in supply.
New opportunities for Wall Street giants.
According to the Financial Times, in recent years, private equity giants like Blackstone and Apollo have actively sought to enter the U.S. 401k retirement market and have begun to establish partnerships with major asset management firms and pension platforms such as Vanguard, Empower, and Great Gray Trust. This move is seen as a key breakthrough for the private equity industry to tap new sources of capital following obstacles in raising funds from traditional institutional capital (such as pensions and endowment funds). Industry forecasts suggest that if they can successfully embed within the 401k plans, the private equity industry is expected to attract hundreds of billions of dollars in new asset inflows.