In early August, President Donald Trump signed a new executive order to allow alternative assets such as cryptocurrencies into 401(k)s and other defined contribution plans. By the end of 2025, Bitcoin (BTC 0.25%) could be on its way to becoming a mainstream retirement asset.
Not surprisingly, Bitcoin rallied on the news. It's currently trading at about $120,000 and appears poised to move higher. It's clear that the executive order is good for Bitcoin, but what does it mean for the way Americans save for retirement?
A new approach to retirement
It will likely take several months before the executive order has a major impact. The U.S. Department of Labor will still need to suggest and review guidelines. But a number of top asset managers are already preparing new investment products to help Americans save for retirement in an entirely new way.
A notable example here is BlackRock, which introduced spot Bitcoin exchange-traded funds (ETFs) in January 2024. According to BlackRock, the days of the typical 60/40 portfolio (60% stocks, 40% bonds) may be coming to an end. The new template might be something along the lines of a 50/30/20 portfolio, where the 20% allocation will be for alternative assets covered by the executive order (not just cryptocurrencies, but also private equity and other investments).
Image source: Getty Images.
So, the big question becomes: How much of that 20% will go to Bitcoin and other cryptocurrencies? The thinking now is that anywhere from 5%-10% might be for Bitcoin. That's a huge increase, given that just 12 months ago, a 1% allocation to Bitcoin was considered aggressive.
How much more will people be able to save for retirement?
Boosting a Bitcoin allocation from 1% to 5% might not seem like a big deal. But over a long enough period of time, it could end up having a huge impact on the size of a future nest egg. According to some estimates, simply being able to boost your annual return by 0.5% each year will result in 15% more money in your 401(k) by the end of a 40-year period.
Theoretically, that's something that Bitcoin can help investors achieve. During the past decade, Bitcoin has been one of the top-performing assets in the world. Last year, for example, Bitcoin posted a return of 125%. The year before that, Bitcoin also posted a triple-digit percentage return. So just imagine the impact of adding such a turbo-charged asset like Bitcoin to your investment portfolio for a long period of time. You might wind up with a truly enormous retirement nest egg.
Risk factors
All of this sounds fantastic, right? But if you look past the potential for significantly higher returns over a long period of time, there are definitely some real risks to consider when adding crypto to a retirement portfolio.
First and most importantly, the price of Bitcoin does not always go up, contrary to public opinion. It is a highly volatile asset, prone to huge price swings on a monthly, weekly, and even daily basis.
Moreover, in years when it is not the top-performing asset in the world, Bitcoin is often the worst-performing asset. In 2022, for example, Bitcoin lost 65% of its value. During its more than 15-year history, Bitcoin has seen dramatic pullbacks of 70% or more on multiple occasions.
Just imagine if a significant portion of your retirement savings was in Bitcoin. In a matter of months, 70% or more of your wealth would have simply disappeared. After an entire lifetime of saving, you might be back to square one.
Moreover, many investors may have absolutely no idea of the ways that crypto is entering their portfolios, without them even realizing it. Take target date funds, for example. BlackRock says it is working on a new crypto-flavored 401(k) target date fund that will be available sometime in the first half of 2026. It will include anywhere from a 5%-20% allocation to alternative investments, including crypto. So investors will really need to read the fine print to understand exactly what's in their retirement funds. A seemingly safe target date fund might be loaded up with Bitcoin or other equally volatile crypto.
Bitcoin as a retirement catch-up tool
For investors new to crypto, it's probably best to think of Bitcoin (and crypto in general) as a retirement catch-up tool. But it shouldn't be the centerpiece of a retirement strategy.
In other words, if you are nearing retirement, sprinkling a bit of Bitcoin into your portfolio could help you catch up and meet your retirement goals. But just be aware -- at any point in time, the price of Bitcoin could collapse. So you will need to make sure that any crypto entering your retirement portfolio won't sink an entire lifetime of saving.
