United States President Donald Trump has signed an executive order that will allow Americans to add digital assets like Bitcoin and Ethereum to their 401(k)s, which are retirement accounts.
While this development caused a rise in the cryptocurrency markets, analysts say that this could open the door to a long-term rally.
Tom Dunleavy, Head of Ventures at Varys Capital, stated that this decision could generate billions of dollars in investment flows into digital assets. “When Americans receive their biweekly paychecks, typically a 1% to 10% cut is transferred to their 401(k) accounts,” Dunleavy said, noting that this money has traditionally been channeled into approximately 60% stocks and 40% bonds.
“If suddenly 5% of that allocation were allocated to cryptocurrencies, billions of dollars could flow into this asset class in the coming years.”
According to Dunleavy, this regular capital flow can also provide price stability by creating a “floor price” for assets like Bitcoin and Ethereum.
The executive order will allow individuals to include alternative investments such as private equity, real estate and cryptocurrency in their 401(k) accounts, Bloomberg reported.
Ryan Rasmussen, Head of Research at Bitwise, said the short-term impact of the decree sends a message to investors that cryptocurrencies are now on permanent regulatory footing:
“Such signals will continue to push the market higher.”
Rasmussen argued that 401(k) accounts encompass trillions of dollars in total assets, and there is a constant flow of capital into these accounts through regular payroll deductions:
“If crypto captures even just 1% of 401(k) assets, that would represent $125 billion in new capital. A 3% share would generate $375 billion, and a 5% share would generate $625 billion in capital inflows. That’s serious long-term buying pressure.”
Rasmussen also said that the decision creates huge potential for crypto assets like Bitcoin and Ethereum, both in the short term and in the medium-long term.
Both analysts noted that Bitcoin and Ethereum would benefit the most, as these two assets are currently available to investors through exchange-traded funds (ETFs):
“Because these crypto assets are already available in ETF form, it will be easier for 401(k) providers to add them to their investment menus.”
*This is not investment advice.