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Allowing Pension Funds to Invest in Cryptocurrencies
U.S. President Donald Trump officially signed an executive order this morning, opening up 401(k) retirement plans to investments in cryptocurrencies and private equity assets, paving the way for millions of dollars in funding to flow into the digital asset market and potentially further strengthen the integration of crypto assets with the traditional financial system.
This order also relaxes the allocation scope of pension funds to alternative assets, including private equity, real estate, and cryptocurrencies. According to a briefing released by the White House on Thursday:
“Alternative assets such as private equity, real estate, and digital assets offer competitive returns and diversification benefits.”
While there has not been a formal prohibition against pension funds investing in cryptocurrencies in the past, the U.S. Department of Labor (DOL) had issued guidance requiring pension plan fiduciaries to “exercise extreme caution when considering the inclusion of cryptocurrencies in 401(k) investment options.” However, this guidance was fully revoked in May of this year.
The executive order signed by Trump requires the DOL to issue new investment guidelines, treating cryptocurrencies as a legitimate option within the same asset class as other assets. This move is expected to change the attitudes of many wealth management institutions that have previously shied away from this area, potentially leading to significant capital inflows into spot Bitcoin ETFs or directly held crypto assets.
Matt Hougan, Chief Investment Officer of Bitwise, stated:
“This order is not the government saying ‘you should put cryptocurrencies in your retirement accounts,’ but rather saying ‘the government will no longer block you from making your own investment decisions.’”
Although the order allows for the inclusion of spot cryptocurrencies and crypto-based financial products in pension allocation options, considering the risk preferences of most pension plans, it is anticipated that most asset managers will still prefer to use ETFs rather than holding cryptocurrencies directly. Jeffrey Hirsch, CEO of Hirsch Holdings, remarked:
“I have traded Bitcoin ETFs in my IRA account. I think ETFs are suitable for retirement accounts, but the risks of holding directly are too high and are better suited for general accounts.”
Trump Signs “De-Politicization of De-Banking” Order on the Same Day
On the same day, Trump also signed another executive order, requiring financial regulatory agencies to refrain from denying financial services for legitimate business activities based on political or religious reasons. The briefing released by the White House noted that this order will ensure federal regulatory agencies do not promote discriminatory policies under the guise of “reputational risk,” safeguarding the rights of all Americans to use banking services fairly.
The order directs federal financial regulatory agencies, the Small Business Administration (SBA), the Department of the Treasury, and other entities to remove risk assessment guidelines that may lead to “politicized de-banking” within the next six months. Although this order does not directly mention cryptocurrencies, the White House clearly stated in the briefing:
“The digital asset industry has also suffered from unfair de-banking attacks in the past.”
This order is seen as a policy response to the phenomenon of “debanking” within the traditional financial system and may benefit crypto operators in obtaining more stable financial infrastructure support in the United States.