Buying cryptocurrencies with pension funds is equivalent to "hoarding coins," which is another form of "strategic reserve of cryptocurrency assets."
Written by: 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 range of assets, including private equity, real estate, and the newly introduced cryptocurrency assets.
This policy is straightforward to interpret:
It provides a "national-level" endorsement for the cryptocurrency market, signaling a push towards the maturity of the crypto market.
It expands the diversification of investments and returns for pensions but introduces higher volatility and risk.
In the realm of cryptocurrency, this is already significant enough to be recorded in history.
Looking back at the development of 401(k), a key turning point was during the Great Depression when pension reforms allowed investments in stocks. Despite differing historical and economic contexts, this change shares many similarities with 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 United States were primarily based on defined benefit plans, where employers promised to provide employees with stable monthly pensions after retirement. This model originated from the industrialization process in the late 19th century, aimed at attracting and retaining labor.
During this phase, the investment strategy for pension funds was highly conservative. The prevailing belief at the time was that pensions should prioritize safety over high returns, restricted by "Legal List" regulations, which limited investments to low-risk assets such as government bonds, high-quality corporate bonds, and municipal bonds.
This conservative strategy worked well during economic booms but also limited potential returns.
2/6 · The Impact of the Great Depression and the Pension Crisis
The stock market crash on Wall Street in October 1929 marked the beginning of the Great Depression, with the Dow Jones Industrial Average dropping nearly 90% from its peak, leading to a global economic collapse. Unemployment soared to 25%, and countless businesses went bankrupt.
Although pension funds invested very little in stocks at the time, the crisis still impacted them through indirect channels. Many employer companies went bankrupt and could not fulfill their pension commitments, leading to interruptions or reductions in pension payments.
This raised public doubts about the ability of employers and the government to manage 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 emphasized that pensions should avoid "gambling" assets like stocks.
……
The turning point began: the slow economic recovery after the crisis and declining bond yields (partly due to federal tax expansion) sowed the seeds for subsequent changes. At this time, the inadequacy of yields gradually became apparent, making it difficult to cover promised returns.
3/6 · Investment Shift and Controversy 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 bonds to include equity assets such as stocks. This transition was not smooth and was accompanied by intense controversy.
The post-war economic recovery occurred, 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 faced "deficit payment" pressures, increasing the burden on taxpayers.
At the same time, private trust funds began to adopt the "Prudent Man Rule," which originated from 19th-century trust law but was reinterpreted in the 1940s to allow diversified investments for higher returns as long as the overall approach was "prudent." This rule initially applied to private trusts but gradually began to influence public pensions.
In 1950, New York State was the first 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 suit, with North Carolina authorizing investments in corporate bonds in 1957 and allowing a 10% stock allocation in 1961, increasing to 15% by 1964.
This change sparked significant controversy, with opponents (mainly actuaries and unions) arguing that stock investments risked repeating the 1929 stock market crash, putting retirement funds at the mercy of market volatility. Media and politicians labeled it as "gambling with workers' hard-earned money," fearing pension collapses during economic downturns.
To mitigate the controversy, investment ratios were strictly limited (initially no more than 10-20%), prioritizing investments in "blue-chip stocks." For a period, benefiting from the post-war bull market, the controversy gradually faded, proving its return potential.
4/6 · Subsequent Developments and Institutionalization
By 1960, non-government securities accounted for over 40% of public pensions. The holding rate of New York City municipal bonds dropped from 32.3% in 1955 to 1.7% in 1966. This transition reduced the taxpayer burden but also made pensions more reliant on the market.
In 1974, the Employee Retirement Income Security Act (ERISA) was enacted, applying the prudent investor standard to public pensions. Despite initial controversies, stock investments were ultimately accepted, but some issues were exposed, such as significant pension losses during the 2008 crisis, reigniting similar debates.
5/6 · Signal Release
The current introduction of cryptocurrency assets into 401(k) plans is highly similar to the previous controversies surrounding the introduction of stock investments, both involving a transition 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 radical pension reform, releasing some signals from this point.
The promotion, regulation, and education of cryptocurrency assets will advance to assist people's acceptance and risk awareness of these emerging assets.
From a market perspective, the inclusion of stocks in pension plans benefited from the long bull market in U.S. stocks; cryptocurrency assets must also navigate a stable upward market to replicate this path. Additionally, since 401(k) funds are effectively locked in,
Buying cryptocurrencies with pension funds is equivalent to "hoarding coins," which is another form of "strategic reserve of cryptocurrency assets."
From any perspective, this is a significant positive for Crypto.
The following is supplementary information; professionals may skip.
6/6 · Appendix - The Meaning and Specific Operation 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 contribute to individual retirement accounts through pre-tax wages (or post-tax wages, depending on the specific plan) for long-term savings and investments.
A 401(k) is a "defined contribution plan," which differs from a traditional "defined benefit plan." Its core lies in the joint contributions of employees and employers, with investment gains or losses borne by the individual employee.
6.1 Contributions
Employees can deduct a certain percentage from each paycheck as a 401(k) contribution, deposited into their individual accounts. Employers provide "matching contributions," which add funds based on a certain percentage of the employee's contribution, with the matching amount depending on employer policy and is not mandatory.
6.2 Investments
A 401(k) is not a single fund but a personal account controlled by the employee, with funds invested in options preset by the employer's "menu." Common options include: S&P 500 index funds, bond funds, mixed allocation funds, etc. The 2025 executive order allows the inclusion of private equity, real estate, and cryptocurrency assets.
Employees must choose an investment portfolio from the menu or accept the default option. Employers only provide options and are not responsible for specific investments.
Ownership of Returns: Investment returns belong entirely to the employee, with no need to share with the employer or others.
Risk Bearing: If the market declines, losses are borne by the employee alone, with no safety net.
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