President Donald Trump's election victory in November has turned into a sweet dream for crypto investors, none more so than for those who invest in the world's most-valuable cryptocurrency, Bitcoin (BTC -0.74%). Since Trump's win last November, Bitcoin is up almost to 60% (as of May 29) and has surpassed $111,000 on several occasions.
Trump has surrounded himself with pro-crypto advisors and installed the former head of a financial and crypto consulting firm to run the Securities and Exchange Commission. He's also announced the creation of a U.S. Strategic Bitcoin Reserve to hold Bitcoin currently in the government's possession, and perhaps even purchase more. And Trump just delivered more great news to Bitcoin investors.
Will Bitcoin soon be in your retirement account?
During former President Joe Biden's tenure, the Labor Department issued guidance to U.S. companies warning them to use "extreme care" before allowing employees to invest in cryptocurrencies through their 401(k) savings accounts:
At this stage in their development, cryptocurrencies have been subject to extreme price volatility, which may be due to the many uncertainties associated with valuing these assets, speculative conduct, the amount of fictitious trading reported, widely published incidents of theft and fraud, and other factors. Extreme volatility can have a devastating impact on participants, especially those approaching retirement and those with substantial allocations to cryptocurrency.
Guidance from federal agencies isn't the law of the land but it tends to have a sobering effect, as companies often get concerned that by acting against official guidance they may find themselves under scrutiny.
Official White House photo by Joyce N. Boghosian.
The Trump administration has now rescinded this guidance, which is more or less a green light for employers to consider offering crypto or crypto-related investments to their employees, if they so choose. However, the current Labor Department added that it is "neither endorsing, nor disapproving of" crypto investments in 401(k) accounts.
Another potential tailwind
In 2024, the U.S. Government Accountability Office found that while some 401(k) plans were offering workers the ability to invest in crypto, actual investment remained low.
Still, the new guidance and friendly approach toward crypto by the Trump administration is likely to change this, and it presents yet another tailwind for Bitcoin and the sector. Most crypto experts think that wider adoption by more mainstream financial institutions will help move crypto prices higher. Retirement savings in 401(k) plans totaled more than $8.9 trillion as of late 2024, so even a gradual increase in crypto purchases by this group could make a big difference.
Now, whether investors should consider adding crypto to their 401(k) accounts is another question. Last year, BlackRock, the world's largest asset manager, published a report on whether Bitcoin should be included in a multi-asset portfolio. It ultimately concluded that Bitcoin could consume a similar allocation as the high-flying "Magnificent Seven" stocks. According to the report:
Those stocks [the Magnificent Seven] represent single portfolio holdings that account for a comparatively large share of portfolio risk as with bitcoin. In a traditional portfolio with a mix of 60% stocks and 40% bonds, those seven stocks each account for, on average, about the same share of overall portfolio risk as a 1-2% allocation to bitcoin. We think that's a reasonable range for a bitcoin exposure.
Bitcoin is now viewed by many as the equivalent of digital gold and therefore a hedge against inflation and a flight to safety as U.S. fiscal concerns mount. For this reason, I think it does make sense to have some small exposure to Bitcoin in your portfolio because it offers a form of diversification away from stocks and bonds. Bitcoin has shown resilience and some similar attributes to gold such as its finite supply of 21 million tokens.
In my opinion, Bitcoin is the only cryptocurrency right now that deserves a small allocation in a 401(k) account. Every other crypto has proven volatile and shows no real attributes that make a multi-asset portfolio any safer.
