Author: Chen Mo cmDeFi
On August 7, 2025, U.S. President Donald Trump signed an executive order allowing 401(k) retirement savings plans to invest in a more diversified array of assets, including private equity, real estate, and the newly introduced cryptocurrency.
This policy is as straightforward as it appears, easy to interpret.
Providing 'national-level' endorsement for the cryptocurrency market sends signals to drive the maturity of the cryptocurrency market.
The diversification of pension investments expands returns but introduces higher volatility and risk.
In the field of cryptocurrency, this is already significant enough to be recorded in history.
Throughout the development of 401(k)s, a critical turning point was the pension reform during the Great Depression that allowed investments in stocks. Despite differing historical and economic contexts, this change bears many similarities to the current trend of introducing cryptocurrency assets.
1/6 · The Pension System Before the Great Depression
From the early 20th century to the 1920s, pensions in the U.S. were mainly based on Defined Benefit Plans, where employers promised stable monthly pensions for employees after retirement. This model originated from the industrialization process at the end of the 19th century, aimed at attracting and retaining labor.
During this phase, the investment strategy of pension funds was highly conservative. The mainstream view at the time held that pensions should pursue safety rather than high returns, restricted by the 'Legal List' regulations, primarily limited to low-risk assets such as government bonds, high-quality corporate bonds, and municipal bonds.
This conservative strategy worked well during economic boom periods but also limited potential returns.
2/6 · The Impact of the Great Depression and the Pension Crisis
The Wall Street crash in October 1929 marked the beginning of the Great Depression, with the Dow Jones Index falling nearly 90% from its peak, triggering a global economic collapse. Unemployment soared to 25%, and countless businesses went bankrupt.
Although pension funds at that time invested very little in stocks, crises still impacted them indirectly. Many employer companies went bankrupt, unable to fulfill pension commitments, leading to interruptions or reductions in pension payments.
This raised public doubts about the management capabilities of employers and government pensions, prompting federal intervention. In 1935, the Social Security Act was enacted, establishing a national pension system, but private and public pensions remained locally dominated.
Regulators emphasize that pensions should avoid 'gambling' assets like stocks.
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Turning Point: The slow economic recovery after the crisis led to declining bond yields (partly due to federal tax expansion), planting the seeds for subsequent reforms. At this point, the inadequacy of yields gradually became evident, making it difficult to cover promised returns.
3/6 · Investment Shifts and Controversies in the Post-Great Depression Era
After the end of the Great Depression, especially during and after World War II (1940s-1950s), pension investment strategies began to slowly evolve from conservative bonds to include equity assets such as stocks. This shift was not smooth and was accompanied by intense controversy.
Post-war economic recovery, but the municipal bond market stagnated, with yields dropping to a low of 1.2%, unable to meet the guaranteed returns of pensions. Public pensions faced 'deficit payment' pressure, increasing the burden on taxpayers.
At the same time, private trust funds began adopting the 'Prudent Man Rule,' a principle originating from 19th-century trust law but reinterpreted in the 1940s to allow diversified investments for higher returns as long as they were 'prudent' overall. This rule initially applied to private trusts but gradually began to influence public pensions.
In 1950, New York became the first state to partially adopt the Prudent Man Rule, allowing pensions to invest up to 35% in equity assets (such as stocks). This marked a shift from the 'Legal List' to flexible investments. Other states followed, with North Carolina authorizing investments in corporate bonds in 1957 and allowing 10% stock allocation in 1961, which increased to 15% by 1964.
This change sparked significant controversy, with opponents (mainly actuaries and unions) arguing that stock investments would repeat the mistakes of the 1929 crash, placing retirement funds at risk of market fluctuations. Media and politicians labeled it as 'gambling with workers' hard-earned money,' fearing a pension collapse during economic downturns.
To alleviate controversy, investment ratios were strictly limited (initially no more than 10-20%) and prioritized investments in 'blue-chip stocks.' For a period following that, benefiting from the post-war bull market, the controversy gradually faded, proving its return potential.
4/6 · Subsequent Developments and Institutionalization
By 1960, the proportion of public pension funds in non-government securities exceeded 40%. The holding rate of New York City municipal bonds dropped from 32.3% in 1955 to 1.7% in 1966. This shift reduced taxpayer burdens but also made pensions more reliant on the market.
The Employee Retirement Income Security Act (ERISA) was enacted in 1974, applying the prudent investor standard to public pensions. Despite initial controversies, stock investments were eventually accepted, but it also exposed some issues, such as severe pension losses during the 2008 crisis, reigniting similar debates.
5/6 · Signal Release
The current introduction of cryptocurrency assets into 401(k)s is highly similar to the previous introduction of stock investments, both involving a leap from conservative investments to high-risk assets. Clearly, the current maturity of cryptocurrency assets is lower and their volatility higher, which can be seen as a more aggressive pension reform, releasing some signals from here.
The promotion, regulation, and education of cryptocurrency assets will advance one level to assist people's acceptance and risk awareness of this emerging asset class.
From a market perspective, the inclusion of stocks in pension plans benefited from the long bull market in U.S. stocks, and cryptocurrency assets must also navigate a stable upward market. Meanwhile, since 401(k) funds are essentially locked in,
Pension investments in cryptocurrency are akin to 'hoarding coins,' equivalent to another 'cryptocurrency strategic reserve.'
No matter how you interpret it, this is a huge positive for Crypto.
The following are supplementary materials; professionals may skip this.
6/6 · Appendix - The Meaning and Specific Operational Mechanism of 401(k)
A 401(k) is an employer-sponsored retirement savings plan under Section 401(k) of the U.S. Internal Revenue Code, first introduced in 1978. It allows employees to deposit personal retirement accounts through pre-tax wages (or after-tax wages, depending on the specific plan) for long-term savings and investments.
A 401(k) is a 'Defined Contribution Plan,' contrasting with the traditional 'Defined Benefit Plan.' Its core lies in the joint contributions of employees and employers, with investment returns or losses borne by the employee.
6.1 Contributions
Employees can deduct a certain percentage from each paycheck as 401(k) contributions, deposited into personal accounts. Employers provide 'matching contributions,' which are additional funds based on a certain percentage of employee contributions, with the matching amount determined by employer policy and not mandatory.
6.2 Investment
A 401(k) is not a single fund but a personal account controlled by employees, with funds that can be invested in a 'menu' of options preset by the employer. Common options include S&P 500 index funds, bond funds, and mixed allocation funds. An executive order in 2025 allows for the inclusion of private equity, real estate, and cryptocurrency assets.
Employees need to select investment portfolios from a menu or accept default options. Employers only provide options and are not responsible for specific investments.
Attribution of Returns: Investment returns belong entirely to the employee, with no need to share with employers or others.
Risk Bearing: If the market declines, losses are borne by the employee alone, with no safety net.
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