Crypto in 401(k)s Serves Whales More Than Savers

American University law professor Hilary J. Allen warns that a Labor Department proposal would let early crypto holders unload volatile assets into the 401(k) plans of average workers who show little appetite for them. The rule, issued March 30, creates a process-based safe harbor for fiduciaries adding alternative assets including digital tokens.

Allen’s essay in The Regulatory Review, drawing on her own public comment, calls the move immoral and urges a return to 2022 caution. The piece lands as the proposal remains unfinished after comments closed June 1.

The Safe Harbor That Opens the Menu

The Employee Benefits Security Administration released a proposed regulation for 90 million Americans that spells out how plan managers can evaluate alternatives without automatic litigation risk. Fiduciaries who document six factors (performance history, fees, liquidity, valuation methods, benchmarks, and complexity) gain a presumption of prudence under ERISA.

Secretary Lori Chavez-DeRemer framed it as delivering competitive returns and diversification. Deputy Secretary Keith Sonderling stressed the rule is asset-neutral: “The department’s days of picking winners and losers are over.” Treasury and SEC leaders backed the effort as part of broader access goals.

• Scope: participant-directed individual account plans, including target-date funds that hold private equity, real estate, commodities, infrastructure, lifetime income, and digital assets.
• Trigger: President Trump’s August 7, 2025 executive order defining alternative assets and directing DOL to clarify fiduciary process and curb lawsuits.
• History: the 2022 Compliance Assistance Release that urged extreme care on crypto was rescinded in 2025; this proposal expands that shift.

Plans have always had theoretical authority to include such assets. Almost none did, in part because of litigation fear and prior guidance. The safe harbor aims to change that calculation.

Polls Show Little Hunger for Crypto Options

Administration language assumes everyday savers want the exposure. Survey data points the other way.

Allen notes the gap between claimed demand and actual attitudes. Lobbying and political spending, not grassroots pressure, have pushed the issue. That mismatch undercuts the democratizing claim.

How Early Holders Find Exit Liquidity

Allen’s core charge is structural. Most crypto tokens lack cash flows or hard assets. Prices rest on continuous new buyers. When large holders (“whales”) sell, someone else must absorb the supply or prices fall.

She calls those remaining holders bagholders. Research from the Bank for International Settlements covering August 2015 to December 2022 found a majority of Bitcoin app users lost money across nearly all economies studied. Larger, more sophisticated investors cashed out at the expense of smaller ones. The median investor lost roughly half the funds put in.

Miners who order transactions can also be paid to let whales jump the queue. Everyday participants sit at a structural disadvantage in what Allen terms a zero-sum game. Opening 401(k) menus creates a vast new pool of patient capital that can absorb sales without immediate market panic. Wealth managers already package crypto yield products for high-net-worth clients; staking yield products for wealth clients show how institutions meet demand among accredited investors. The proposed rule extends similar exposure to ordinary plans.

• Money narrative fails: stable value is required for money, yet appreciation is the investment pitch.
• Scarcity narrative fails: a fixed supply of nothing remains nothing.
• Hedge narrative fails: volatility and equity-like correlation undercut the digital-gold claim; Mark Cuban publicly sold most of his Bitcoin after growing disillusioned with the inflation-offset story.

None of the standard justifications survive scrutiny for retirement accounts that need reliability over decades.

Volatility Scams and the Numbers That Stick

Even bull markets bring sharp swings that make crypto a poor core holding for retirement. The industry also generates repeated losses from hacks, rug pulls, and fraud. Blockchain finality means stolen coins rarely return.

1. August 7, 2025: Executive Order 14330 directs DOL to reexamine guidance and propose safe-harbor rules for alternatives including digital assets.
2. March 30-31, 2026: DOL issues the proposed fiduciary rule and Federal Register notice; comment period opens.
3. June 1, 2026: Comment deadline; Allen and others file.
4. August 10, 2026: Allen’s Regulatory Review essay appears while the rule remains proposed.

Crypto researcher Molly White’s tracker put cumulative losses from grifts and disasters above $81 billion as of May 2026. The FBI’s 2025 Internet Crime Report recorded more than 11 billion in crypto losses across 181,565 complaints, up sharply from prior years and the single largest loss category. Investment fraud overall led the dollar totals.

Wall Street wants to dump its risky assets in your 401k, putting your retirement at risk.

Senator Elizabeth Warren posted that line in April after the proposal landed; the post drew hundreds of thousands of views. Crowd reaction on X has mixed freedom-of-choice language with blunt warnings about who ends up holding the bag when volatility hits. The pattern matches Allen’s Senate Banking testimony from 2022: an asset class manufactured at zero cost, lacking fundamentals, and driven by sentiment breaks traditional fraud checks.

Related platform problems keep surfacing. Recent crypto platform regulatory settlements illustrate how quickly consumer-facing crypto products attract enforcement once losses mount.

Spillover Risk Hits Every Plan

Allen’s second-order concern reaches savers who never touch crypto. The 2022 market crash stayed largely contained; people outside crypto largely felt nothing beyond headlines about FTX. That separation is shrinking. Administration policy has pulled crypto deeper into traditional finance. Adding it to 401(k) target-date and allocation funds would accelerate the link.

A sharp crypto drawdown could then pressure valuations, liquidity, or confidence across broader plan menus. Plans that never listed a pure crypto option would still feel the shock through multi-asset vehicles. Fragility rises for everyone.

Fiduciaries retain final say under the proposal. Nothing forces any plan to add crypto. The safe harbor simply lowers the legal friction for those who want to try. Allen argues that friction was protective and should return.

The Guidance DOL Should Restore

Allen wants the department to abandon the current rulemaking and reinstate the 2022 Compliance Assistance Release that told fiduciaries to exercise extreme care before adding cryptocurrency options. That document treated the asset class as high-risk for retirement savers. The new proposal treats process documentation as sufficient protection.

Process matters. Outcomes matter more when the underlying asset has no cash flows, extreme volatility, irreversible transfers, and a track record of retail losses. Ninety million participants and trillions in plan assets sit behind the decision. Allen’s view is that notations on a ledger with nothing behind them do not belong in those accounts.

The Labor Department still has room to revise or withdraw before any final rule. Until then the safe harbor sits as a live invitation. Average savers who already distrust crypto may soon find it sitting inside the default funds that hold most of their retirement money.