Why Gen X investors should keep crypto out of their 401(k) plans

Earlier this month, the president signed an executive order (EO) that could potentially clear the path for 401(k) plans to include alternative investments like cryptocurrency. Theoretically, relaxing the rules about crypto in defined-contribution retirement plans will allow more average Americans to take advantage of the upsides of these investments. Gen X investors should beware.

Crypto might seem like a perfect opportunity for Gen X investors. This generation has the kind of tech savvy that comes from learning to use new digital tools as they’re invented, making them much more likely to understand and appropriately invest in cryptocurrency. The timing also feels ideal, since Gen X retirements are on the horizon, and crypto enthusiasts promise this investment can provide quick financial boosts.

But unlike chocolate and peanut butter, getting cryptocurrency in your 401(k) is unlikely to be two great tastes that taste great together. In fact, crypto, like private equity, doesn’t belong in a 401(k) or other defined-contribution plan—and not just because no one can satisfactorily explain what the heck a blockchain is.

Here’s what you need to know about the very real hazards of inviting cryptocurrency into your 401(k).

There’s more than meets the EO

The August 7 executive order gave the Secretary of Labor 180 days (until February 3, 2026, specifically) to clarify its position on the rules for alternative assets in 401(k)s, per the Employee Retirement Income Security Act of 1974, known as ERISA. Under ERISA, employers have a fiduciary responsibility to make sure the investment options in your 401(k) are prudent and that any fees are not onerous.

So far, this executive order sounds about par for the course. There’s a limit to executive power via EO. It’s reasonable that a president who’d like to buy the world a cryptocoin in perfect 401(k) harmony would start by asking the U.S. Department of Labor (DOL) to review current rules to clarify its position.

But the DOL has already indicated it’s willing to open the door to 401(k) crypto investments. On May 28, 2025, the DOL’s Employee Benefits Security Administration rescinded 2022 Biden-era guidance that actively discouraged fiduciaries from including cryptocurrency in defined-contribution retirement plans.

Weeks before the executive order was signed, the rollback of this 2022 guidance had already made it easier for plan sponsors to start including crypto in 401(k) plans.

The problem is that I’ve seen this kind of irrational exuberance about an investment before. And that one didn’t belong in a 401(k), either.

The Beanie Baby connection

In the late 1990s, an acquaintance once spent an interminable hour explaining how her collection of plush toys would not only pay for her children’s college education but also fund her retirement.

I was reminded of that long ago conversation the first time a crypto enthusiast told me that fiat currency’s days were numbered, and that the theoretical coins he mined were poised to bring about world peace, in addition to making him rich.

That’s when I came to the conclusion that cryptocurrency is Beanie Babies for tech bros.

Like Ty Inc.’s plush toys, which were kept artificially scarce, there is a limit to the amount of Bitcoin that can be mined from the blockchain, which helps drive up the price on the secondary market.

Similarly, Ty used a unique and confusing distribution model that only sold 36 of any one specific character at a time to independent retailers. This triggered a kind of a market frenzy in collectors. While Ty’s distribution model is easier to understand than the process behind limited-supply cryptocurrencies like Bitcoin, the opacity of the crypto process causes a similar kind of frenzy among investors. Many crypto buyers only know they need to buy and buy quickly, even if they don’t understand what they’re purchasing.

But most damning of all, neither Beanie Babies nor cryptocurrency have inherent value beyond the market’s faddish interest. The only way to make money with either Legs the Frog or cryptocurrency is to sell them for a higher price than you paid for them—which is more like gambling than a true investment.

What’s the beef?

It may seem like no big deal that cryptocurrency might be on the menu in your 401(k). It’s there if you’re interested, and you can just ignore it if you don’t.

But as with the inclusion of private equity in your defined contribution plan, just opening the door to this kind of investment could cause problems for a number of reasons, including:

No regulations! Dogs and cats living together!

One of the selling points of cryptocurrency is the fact that it is decentralized, with next to no government oversight, and little to no regulation. This offers investors a potentially thrilling opportunity to win big in a Wild West-type situation where anything is possible. Gen Xers—who wear their hard-earned skepticism of institutions on their sleeves—may be especially intrigued by the promise of decentralized currency.

Unfortunately, the exhilarating lack of oversight is also a cybersecurity nightmare.

Blockchain analysis firm Chainalysis found in its 2024 Crypto Crime Report that over $1.7 billion in cryptocurrency was stolen in 2023, while $3.8 billion was stolen in 2022. Since this industry has so little oversight or regulation in the United States, it’s difficult to predict what kind of security your 401(k) could offer against cyberattacks and hacks aiming for your cryptocoins, or what avenues for recovery (if any) you would have if you are the victim of a hack.

There’s that one key word: “fiduciary”

ERISA rules require 401(k) plan sponsors (i.e., employers) to act as fiduciaries when choosing investment options for the defined-contribution plans offered to their employees. In other words, it is the employer’s responsibility to only include investments they believe are in the employees’ best interests, are free of onerous fees, and have prudent levels of risk. Legal scholars have argued that crypto categorically does not fit that definition.

Remember: the word fiduciary isn’t the kind of corporate speak that doesn’t mean anything, like “paradigm-shift” or “lunchtime.” It has a legal definition and employers can (and do) run afoul of ERISA if they do not meet their fiduciary responsibilities. In just the past year, ERISA lawsuits against excessive 401(k) fees have risen to a near record high.

This does mean 401(k) plan participants have legal recourse if their employers fail in their fiduciary duty. But it raises an important question: can you trust that a plan that offers crypto as an investment option is taking its fiduciary responsibility seriously in all aspects of implementing your plan?

Knowing is half the battle

A healthy distrust of institutions is an important part of Generation X’s emotional makeup–which may leave investors in this cohort vulnerable to the idea of investing in crypto via their 401(k). But even though the current administration is all-in on cryptocurrency, it doesn’t necessarily belong in anyone’s defined-contribution retirement plan.

Crypto is generally volatile and overhyped, and does not have any underlying value, making it an investment similar to Beanie Baby plush toys. Though enthusiasts tout the intriguing-to-Gen X fact that crypto is decentralized and unregulated, lack of oversight leaves 401(k) investors vulnerable to cybersecurity hacks with no clear recourse if they’re targeted.

Finally, considering all of the risks associated with cryptocurrency, it’s unclear how 401(k) plan sponsors will meet the legal requirements for fiduciary responsibility while offering crypto to plan participants.

It will be some time before crypto might start popping up in your retirement plans. Before that happens, tell your employer to please keep it out. Just Say No.