Encryption assets included in the 401(k) plan: A new chapter in pension investment

On August 7, 2025, U.S. President Trump signed an executive order allowing 401(k) retirement savings plans to invest in a more diversified range of assets, including encryption assets for the first time. This decision not only provides national-level endorsement for the encryption market but also signifies a significant shift in pension investment strategies.

The impact of this policy is profound. On one hand, it injects strong momentum into the encryption market, promising to accelerate its maturation process. On the other hand, pensions have gained broader investment options, but they also face higher volatility and risks.

Looking back at the development history of the 401(k) plan, we can identify an important turning point: during the Great Depression, pension reform allowed for investments in stocks. Although the current context of introducing encryption assets is different from that era, there are many similarities between the two.

Conservative Investment Strategies Before the Great Depression

From the early 20th century to the 1920s, the pension system in the United States was primarily based on fixed benefit plans. Employers promised to provide employees with a stable monthly pension after retirement, a model that originated from the industrialization process of the late 19th century, aimed at attracting and retaining talented labor.

The pension investment strategy at that time was extremely conservative. The mainstream view was that pensions should prioritize safety over high returns. Due to the restrictions of the "legal list" regulations, pensions were mainly invested in low-risk assets such as government bonds, high-quality corporate bonds, and municipal bonds.

This conservative strategy works well during periods of economic prosperity, but it also limits potential investment returns.

The Impact and Crisis Brought by the Great Depression

In October 1929, the Wall Street stock market crash opened the curtain on the Great Depression. The Dow Jones Industrial Average plummeted nearly 90% from its peak, triggering a global economic collapse. The unemployment rate soared to 25%, and countless businesses went bankrupt.

Although pension funds invested very little in stocks at that time, the crisis still hit them indirectly. Many employer companies went bankrupt and were unable to fulfill pension commitments, leading to interruptions or significant reductions in pension payments.

This situation has raised public doubts about the ability of employers and the government to manage pension funds, prompting federal intervention. In 1935, the Social Security Act was introduced, establishing a national pension system, but private and public pensions are still primarily led by local entities.

Regulators emphasize that pensions should avoid investing in assets such as stocks that are considered "gambling."

However, the economic recovery after the crisis was slow, and bond yields began to decline, laying the groundwork for subsequent reforms. At this time, the situation where yields were insufficient to cover promised returns gradually became apparent.

Investment Shifts and Controversies in the Post-Great Depression Era

After the Great Depression, especially during and after World War II (1940s-1950s), pension investment strategies began to slowly evolve from conservative bond investments to equity assets that included stocks. This transition was not smooth and was accompanied by intense controversy.

After the war, the economy recovered, but the municipal bond market stagnated, with yields dropping to a low of 1.2%, failing to meet the guaranteed returns for pensions. Public pensions are under pressure from "deficit payments," increasing the burden on taxpayers.

At the same time, private trust funds began to adopt the "prudent person rule." This rule originated from trust law in the 19th century but was reinterpreted in the 1940s to allow diversified investments in pursuit of higher returns as long as the overall approach is "prudent." This rule was initially applicable to private trusts but gradually started to affect public pensions.

In 1950, New York became the first state to partially adopt the prudent man rule, allowing pension funds to invest up to 35% of their assets in equity. This marked a shift from the 'legal list' to flexible investing. Other states followed suit, with North Carolina authorizing investments in corporate bonds in 1957, permitting a 10% allocation to stocks in 1961, and increasing it to 15% by 1964.

This change has sparked significant controversy, with opponents (mainly actuaries and labor unions) arguing that stock investments may repeat the fate of the 1929 stock market crash, placing retirement funds at risk of market volatility. Media and politicians have referred to it as "gambling with workers' hard-earned money," expressing concerns that pensions could collapse during an economic recession.

To ease the controversy, the investment ratio was strictly limited (initially not exceeding 10-20%), with a priority on investing in "blue chip stocks". Over the following period, benefiting from the post-war bull market, the controversy gradually disappeared, proving the return potential of stock investments.

Subsequent Development and Institutionalization

By 1960, the proportion of public pension non-government securities exceeded 40%. The holding rate of New York municipal bonds dropped from 32.3% in 1955 to 1.7% in 1966. This shift reduced the burden on taxpayers but also made pensions more dependent on the market.

In 1974, the Employee Retirement Income Security Act was enacted, applying the prudent investor standard to public pensions. Despite initial controversies, stock investments were eventually widely accepted, but it also exposed some issues, such as the heavy losses to pensions during the 2008 financial crisis, which reignited similar debates.

Current Situation Analysis

The current 401(k) introduces encryption assets, which is highly similar to the previous controversies surrounding stock investments, as both involve a transition from conservative investments to high-risk assets. Clearly, the current maturity of encryption assets is lower and their volatility is higher, which can be seen as a more aggressive pension reform, from which we can observe some important signals.

The promotion, regulation, and education of encryption assets will enter a new stage to enhance people's acceptance and risk awareness of these emerging assets.

From a market perspective, the inclusion of stocks in pension plans has benefited greatly from the long bull market in U.S. stocks. If encryption assets are to replicate this path, they must also emerge from a stable upward market trend. At the same time, because the 401(k) funds are effectively locked, pension funds buying encryption assets is equivalent to "hoarding coins," akin to another form of "encryption asset strategic reserves."

No matter how you interpret it, this is a huge positive news for the encryption currency industry.

401(k) Project Overview

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 contribute to individual retirement accounts through pre-tax wages (or post-tax wages, depending on the specific plan) for long-term savings and investment.

401(k) is a "fixed contribution plan", which differs from a traditional "fixed income plan" in that the core is the joint contribution of employees and employers, and the investment gains or losses are borne by the individual employee.

contribution mechanism

Employees can deduct a certain percentage from each paycheck as a 401(k) contribution, which is deposited into their personal accounts. Employers provide "matching contributions," which means they add funds based on a certain percentage of the employee's contribution, with the matching amount depending on the employer's policy and is not mandatory.

investment options

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, mixed allocation funds, etc. The executive order of 2025 allows for the inclusion of private equity, real estate, and encryption assets.

Employees need to select a portfolio from the menu or accept the default option. Employers only provide options and are not responsible for specific investments.

• Ownership of earnings: Investment gains belong entirely to the employee, and there is no need to share them with the employer or others.
• Risk Bearing: If the market declines, the losses will be borne by the employees themselves, with no bottom protection mechanism.