Smaller cryptocurrencies could become available in US 401(k) retirement plans under a proposed Labor Department rule, but experts say they may face more challenges than Bitcoin (BTC) and Ether (ETH).
The rule reached the White House for final review on Thursday, according to the Office of Information and Regulatory Affairs. It aims to make it easier for retirement plans to offer alternative investments like crypto, while offering more legal protection for employers and plan managers.
The Labor Department’s March proposal neither specifies which digital assets could be included nor sets a minimum market capitalization requirement. However, it does guide retirement plan managers to consider six factors when choosing: performance, fees, liquidity, valuation, benchmarks and complexity.
The proposal could open the door to more cryptocurrencies in retirement plans, however, it does not guarantee they will be offered. And when it comes to smaller tokens, experts say they could face challenges because of their limited history, liquidity and other risks.
Why smaller cryptocurrencies could face challenges
Teresa Goody Guillén, managing partner at Bellementis PLLC, said Bitcoin and Ether are likely to be the first cryptocurrencies offered because of their established markets and investment products. Bitcoin and Ether are the two largest cryptocurrencies by market capitalization, at approximately $1.5 trillion and $273 billion, respectively, according to CoinGecko data as of 20:01 UTC on Nov. 6.
Still, that doesn’t automatically exclude altcoins, she said. Instead, those managing 401(k) plans would need to show that their investment choices are sensible.
“The real question isn’t which cryptocurrencies regulators pick – it’s whether an investment meets the same standards of prudence, liquidity, valuation and investor protection as any other retirement option,” Guillén said.
She added that while a digital asset’s market cap matters, it shouldn’t be the deciding factor. “Big doesn’t mean suitable, and small doesn’t mean disqualified,” Guillén said. “Digital assets shouldn’t get special treatment, or be excluded because they use different technology.”
Bernardo Brites, co-founder and CEO of Trace Finance, echoed Guillén sentiment, adding: “Run any token through that list and the answer is short. Bitcoin passes clearly. Ether passes; everything else fails on track record or benchmark before a fiduciary ever gets to market cap.”
Brites explained, in this situation, market cap matters only indirectly. “The practical test is simpler: can a plan committee document a daily, reliable price from a regulated wrapper?” he said. “If not, it is not going in.”
ETFs could come before direct crypto holdings
While the Labor Department’s proposal does not limit crypto investments to exchange-traded funds (ETFs) or managed funds, experts said those products will likely be offered before direct crypto holdings.
“ETFs and managed funds will likely come first because they fit existing custody and recordkeeping systems,” Guillén said. Whereas holding cryptocurrencies directly would raise additional concerns about storage, cybersecurity and pricing, Guillén said. Still, she added that those risks should not automatically rule them out.
Brites also expects crypto investments to become available gradually. He said existing brokerage options would likely come first, followed by standalone ETFs and funds that include small amounts of crypto.
He expects some crypto investment options to become available in 2027, followed by ETFs at larger employers later that year. Crypto could become more widely available in retirement funds by 2028, he said.
“The rule changes the legal risk, not the plumbing, and the plumbing is slower,” Brites said. “White House review can take up to ninety days, then publication, then an effective date typically sixty days later.”
Legal uncertainties remain
Brites further explained that legal uncertainty could also slow adoption. The proposal would offer retirement plan managers some protection from lawsuits, but it would not prevent them from being sued over their investment decisions.
He also warned that future administrations could reverse the rule, a possibility that could make employers hesitant to add crypto to long-term retirement plans.
“The 2022 guidance was reversed in 2025; a fiduciary signing a ten-year plan design has to consider that this rule could be reversed too,” he said. “And with courts giving less deference to agencies, how much weight the safe harbor carries in litigation is itself unsettled.”
