Should You Hold Crypto in Your 401(k)? Experts Weigh In

As the government removes warnings on holding cryptocurrency in retirement accounts, some savers might consider now a good time to include the virtual asset in their portfolio.

The Department of Labor (DOL) last week rescinded guidance that called for employers to use “extreme caution” when including the option to hold cryptocurrency in retirement accounts.

Some financial experts said the change likely won’t sway retirement savers in either direction. However, many suggest you consider your retirement timeline and risk tolerance if you want to add crypto to your retirement account assets.

The Pros To Holding Crypto in a 401(k) Account

The biggest reason people might consider holding crypto in a retirement account is that the payoff could be tremendous.

For example, the price of bitcoin has risen by more than 11% so far this year. At the same time, the S&P 500 has only grown 2%. However, that’s not always guaranteed, as bitcoin has had one of the most volatile trading histories across asset classes.

“It makes the most sense for those with long horizons, an informed view of the market, and the financial flexibility to withstand downturns without jeopardizing retirement security,” said Kwamie Dunbar, associate professor of finance at Worcester Polytechnic Institute.

Another appeal to holding crypto in your retirement account is the diversification it brings to your portfolio, said David Yermack, director of the New York University Pollack Center for Law and Business.

“Ideally, an investor should be as diversified as possible, and crypto should be treated the same as any other asset, including stocks, bonds, real estate, commodities, and so forth,” Yermack said.

The Cons To Holding Crypto in a 401(k) Account

Unlike traditional fixed income or equity assets, most crypto options don’t accrue interest or dividends while sitting in a retirement account, Dunbar said. But experts say the biggest downside of holding crypto in your retirement account is the risk that could come from it.

Cryptocurrencies are considered unstable and subject to drastic price swings.

“Anyone who invests in crypto should recognize that it has historically suffered a number of sudden, steep price drops,” said Yermack, who also said that retirement savers contemplating crypto holdings should know “they could lose most of the investment very quickly.”

If a large percentage of your assets are in crypto and it goes down, that could tank your retirement savings. Because of this, Yermack suggests only holding a small amount of crypto in your retirement account if you decide it’s the right fit for your plans.

“Cryptocurrencies are highly volatile. For younger investors or those with a higher risk appetite, crypto may serve as a speculative growth component within a diversified retirement portfolio,” Dunbar said. “For older investors closer to retirement, where capital preservation and income are paramount, crypto’s volatility may outweigh its benefits.”