US 401(k) proposal leaves door open to altcoins, but experts see hurdles

Smaller tokens are not excluded by the proposed rule

A proposed US Labor Department rule could make it easier for 401(k) retirement plans to offer alternative investments, including cryptocurrencies. The proposal does not exclude altcoins, which are smaller cryptocurrencies other than Bitcoin.

The rule reached the White House for final review on Thursday, according to the Office of Information and Regulatory Affairs. It would also give employers and plan managers more legal protection when they choose investments.

The March proposal does not name which digital assets could be included. It also does not set a minimum market size requirement. Market capitalization means the total value of a cryptocurrency in circulation.

Key points from the proposal

• Smaller cryptocurrencies are not ruled out, but inclusion is not guaranteed.
• Plan managers would be guided to consider performance, fees, liquidity, valuation, benchmarks and complexity.
• Liquidity means how easily an asset can be bought or sold.
• Experts expect Bitcoin and Ether to be offered first, with other coins facing more checks.
• Exchange-traded funds, or ETFs, which are funds that trade on exchanges and hold assets for investors, may come before direct crypto holdings.

What plan managers would need to check

Teresa Goody Guillen of Bellementis PLLC said Bitcoin and Ether are likely to be first because they have established markets and investment products. She said other cryptocurrencies are not automatically excluded, but plan managers would need to show their choices are sensible.

She also said market size matters but should not be the only deciding factor. In her view, a digital asset should be judged by the same standards as other retirement options.

Bernardo Brites of Trace Finance said Bitcoin passes the proposed checks clearly and Ether also passes, while other tokens may fail on track record or benchmarks. He said a practical test would be whether a plan committee can document a daily, reliable price from a regulated product.

CoinGecko data cited in the report put Bitcoin at about $1.5 trillion and Ether at about $273 billion as of 20:01 UTC on Nov. 6.

Funds may come before direct crypto holdings

The proposal does not limit crypto investments to ETFs or managed funds. Experts said those products will likely come first because they fit existing custody and recordkeeping systems.

Guillen said holding cryptocurrencies directly would raise extra concerns about storage, cybersecurity and pricing. She added that those risks should not automatically rule out direct holdings.

Brites expected adoption to happen in stages. He said existing brokerage options would likely come first, followed by standalone ETFs and funds with small crypto holdings.

Legal questions remain

Brites said the proposal would give plan managers some protection from lawsuits, but would not stop them being sued over investment decisions. He also warned that a future administration could reverse the rule, which could make employers hesitant about long-term plans.

He said the weight of the safe harbor in litigation is unsettled because courts now give less deference to agencies. These points are expert opinions, not confirmed outcomes.

Timeline experts expect

Brites expected some crypto investment options in 2027, followed by ETFs at larger employers later that year, with wider availability by 2028. He also said White House review can take up to 90 days, followed by publication and then an effective date typically 60 days later. Those are expectations, not confirmed dates.

Where this report came from

• Cointelegraph