Key Points:

1. U.S. President Donald Trump has signed an executive order allowing alternative assets — including cryptocurrencies, private equity, and real estate — to be included in 401(k) retirement savings plans.

2. As an alternative asset, Bitcoin’s unique risk–return profile is reshaping the way investment portfolios can be constructed, while also introducing new risk management challenges.

3. Despite its pronounced risks, Bitcoin has delivered strong cumulative returns over the past decade.

On August 7, 2025, U.S. President Donald Trump signed an executive order directing federal regulators to ease restrictions on alternative investments within 401(k) retirement plans, allowing private equity, real estate, and cryptocurrencies to be included in this $12.5 trillion market. This policy shift provides formal institutional support for Bitcoin and other digital assets and is set to transform the asset allocation landscape of U.S. retirement investing for the first time in nearly half a century.

As the world’s most established cryptocurrency, Bitcoin has attracted broad attention for its decentralized nature and history of high returns. As an alternative asset, its distinctive risk–return characteristics are redefining the possibilities for portfolio construction, while also creating new challenges for risk management. A well-considered allocation strategy will be critical for investors seeking to grow their wealth during this period of structural change.

What Is Bitcoin?

Since its debut in 2009, Bitcoin — the first decentralized digital currency — has leveraged blockchain technology to deliver transparency and security in transactions. It was originally designed to address trust gaps in the traditional financial system, offering a means of payment and store of value that operates without the need for third-party intermediaries. With a capped supply of 21 million coins, Bitcoin’s fixed issuance gives it an inherent scarcity.

However, Bitcoin is far from the only digital asset. The Ethereum network supports smart contracts, fueling the growth of decentralized applications. Beyond these two leaders, the market includes stablecoins, altcoins, and a wide variety of other crypto assets, forming a vast and diverse digital asset ecosystem. As of the end of July 2025, Bitcoin and Ethereum together accounted for nearly two-thirds of the total cryptocurrency market capitalization and dominated trading activity.

U.S. regulators have also been steadily clarifying how cryptocurrencies are defined and overseen. The Commodity Futures Trading Commission (CFTC) has formally classified Bitcoin as a commodity, providing a legal basis for its regulatory jurisdiction. In 2024, the U.S. Securities and Exchange Commission (SEC) approved spot Bitcoin and Ether ETFs — a milestone that expanded compliant investment channels for digital assets, drew significant institutional capital inflows, and accelerated their integration into mainstream markets.

In early 2025, the Trump administration went further, issuing an executive order to establish a “Strategic Bitcoin Reserve,” with plans to incorporate approximately 200,000 confiscated Bitcoins into the national reserves. At the same time, the administration expressed support for U.S. dollar–backed stablecoins (such as USDT and USDC), aiming to create a “Dollar–Stablecoin–Crypto Market” loop that would reinforce the dollar’s role in pricing and settlement across global crypto asset transactions, thereby safeguarding U.S. monetary sovereignty and influence in the digital asset arena.

Source: The White House

Taken together, these policies reflect Washington’s attempt to strike a balance between fostering innovation in crypto assets and mitigating systemic risks — advancing the healthy development of the market through regulatory recognition and institutional support, while strengthening investor protections and market integrity.

Risks of Investing in Bitcoin

Cryptocurrencies exhibit significantly higher price volatility compared to traditional assets. Historical data shows that Bitcoin’s volatility is more than four times that of the S&P 500, with Ethereum’s volatility being even higher. Such extreme price swings bring the potential for high returns but also carry substantial drawdown risks. For instance, over the past decade, Bitcoin has experienced multiple price corrections exceeding 40%.

Source: TradingView

Liquidity risk is another critical concern. Unlike publicly traded stocks and bonds, crypto assets often face limited liquidity, especially under certain market conditions, making it difficult for investors to quickly liquidate positions when needed. Moreover, crypto valuations lack the cash flow backing typical of traditional assets and instead depend heavily on market supply-demand dynamics and investor sentiment, resulting in lower transparency and price stability.

The regulatory environment remains highly uncertain. Although the U.S. Securities and Exchange Commission (SEC) approved spot Bitcoin ETFs in 2024, providing investors with more convenient and regulated investment options, the overall market regulation is still evolving. In the same year, crypto-related fraud cases accounted for 15% of retail investment complaints, highlighting ongoing shortcomings in market transparency and investor protection mechanisms.

Market structure risks also warrant attention. According to CoinMarketCap data as of July 31, 2025, over 3,500 cryptocurrencies have effectively exited the market due to zero trading volume, exposing the uneven quality of projects and the accelerating elimination of “dead coins.”

Against this backdrop, the executive order issued by the Trump administration in August 2025 facilitates the entry of crypto assets, especially Bitcoin, into compliant investment vehicles like 401(k) plans. However, the relevant regulatory guidelines have yet to be finalized. Future adjustments to disclosure standards, risk management, and investment limits could directly affect the investability and compliance costs of crypto assets.

Opportunities for Bitcoin in Investment Portfolios

Despite notable risks, Bitcoin has delivered strong cumulative returns over the past decade. Since its price was less than one cent in 2009, Bitcoin surged to $116,497 by 2025, representing a cumulative return of over one million times. Between 2019 and 2024, allocating 10% to Bitcoin in a portfolio increased annualized returns from the S&P 500’s 15% to approximately 20%-22%. In July 2025 alone, Bitcoin ETFs saw $6 billion in net inflows, pushing prices close to all-time highs.

Source: TradingView

In contrast, the yield on the 10-year U.S. Treasury note hovered around 3.5% in 2024, limiting returns on traditional assets and positioning Bitcoin as an attractive option in a low-yield environment.

Source: TradingView

Notably, as of July 14, 2025, Bitcoin had risen 24% year-to-date and hit a record high of $123,231, far outperforming the S&P 500’s 8% return. From 2019 to 2024, Bitcoin’s annualized return reached 60%, significantly exceeding the S&P 500’s 15%.

Source: TradingView

Institutional forecasts further bolster optimism: VanEck projects Bitcoin could reach $180,000 in 2025, while CoinPedia estimates a high of $168,000. These projections are based on Bitcoin’s capped supply of 21 million coins, increasing institutional adoption, and $55 billion in cumulative Bitcoin ETF inflows during 2024.

Crucially, policy support continues to strengthen. The Trump administration’s executive order mandates the Labor Department and SEC to revise the Employee Retirement Income Security Act (ERISA) by 2026, removing regulatory barriers for Bitcoin inclusion in 401(k) plans. This opens the door for 60 million 401(k) participants to access crypto markets.

The financial industry has responded swiftly: BlackRock plans to launch 401(k) target-date funds with alternative assets in 2026, and Owl Rock Capital is collaborating with Voya Financial to develop private market products. These initiatives are expected to reduce investment costs and improve Bitcoin’s accessibility.

How Should You Allocate?

Considering the Trump administration’s executive order easing restrictions on alternative assets in 401(k) plans, cryptocurrencies like Bitcoin have officially become compliant investment options, offering new allocation opportunities for retirement investors. Given Bitcoin’s high volatility and uncertainty, a prudent approach is to allocate it as a small portion of the portfolio to balance potential return enhancement with risk diversification.

Specifically, younger investors might consider allocating 5%–10% to Bitcoin to capture its long-term growth potential, while those closer to retirement should reduce exposure to mitigate drawdown risks. For example, a portfolio with 60% equities, 35% bonds, and 5% Bitcoin can strike a balance between returns and stability. Additionally, lower-volatility, relatively stable assets such as real estate investment trusts (REITs) or fixed-income products remain important allocation options.

Moreover, investors should closely monitor fiduciary responsibility execution by fund managers, ensuring reasonable fees, transparent valuations, and ongoing assessment of market and regulatory developments impacting the portfolio.

Only through prudent asset allocation and continuous risk management can investors realize potential gains while effectively navigating the uncertainties of the cryptocurrency market.