Thin(k) About Your 401(k) Plan: Should Bitcoin Be Offered In My 401(K) Plan?

In my last post, I concluded that I do not think Bitcoin is appropriate for 401 (k) plans at this time.  Today, I will share some key risks associated with Bitcoin along with a few current, compelling arguments in favor of including it in portfolios, and my concluding thoughts on the matter.


First, Cryptoassets and Blockchain currently have several identified risks, and, in a world as nascent as Crypto, unidentified risks are sure to arise:

  • Technical issues to the Blockchain could allow security flaws.
  • Unidentified competitors could enter the market changing the landscape against current winners such as Bitcoin.
  • “Malicious Noneconomic Actors” could attempt to control a Blockchain network by amassing more computing power than the rest of the participants combined in what is known as a “51% attack.” This would cost incredible sums of money making it virtually uneconomic for anyone interested in profit.  However, a noneconomic player like a state entity could possibly pull this off.
  • Future regulation could emerge.
  • Translating and updating the ledger requires significant energy resources, something that concerns governments, especially China at present.

Arguments for Portfolio Inclusion

What does this have to do with a 401(k) plan and why would I want to buy Bitcoin in my retirement plan?  In a 401k Specialist article entitled “Does Bitcoin Belong In 401(k)s?”, John Sullivan recently interviewed Anthony Scaramucci and Brett S. Messing of SkyBridge Capital.  Those two made a seemingly compelling argument based on the three keys to Bitcoin’s performance.

Scaramucci and Messing believe that because Bitcoin offers high returns over time in exchange for its high relative volatility and because it is uncorrelated to most, if not all, traditional asset classes, there is a place for a small allocation to Bitcoin in a 401(k) portfolio.

The thinking goes that a bust from a small portion of a portfolio has little to no impact on the portfolio overall, but a massive long-term outperformance could move the needle on performance.  Messing points out that BlackRock recently “started to dabble” in Bitcoin apparently in their fixed income portfolios, presumably using a similar argument.

Other Problems

Ok, so investment professionals are making creative, compelling arguments in favor of including Bitcoin in a portfolio even in the 401(k) space.  However, plan sponsors and advisors are held to fiduciary standards of care when offering investment options in plan lineups.  Not to mention the current regulatory hurdles to offering Bitcoin to plan participants

A recent article in the The Wall Street Journal by Elaine Yu and Chong Koh Ping entitled, “China’s Latest Crackdown on Bitcoin, Other Cryptocurrencies Shakes Market” points out just how quickly fortunes can swing in Bitcoin especially when one of the key risks to its value comes into play.  Whether what is going on now is regulation by China or the precursor to a “51% attack”, all you need to do is look at this chart to understand how fragile Bitcoin’s value is.


At this point, I do not believe Bitcoin is an appropriate investment option for a 401(k) plan.  Even at 10+ years old, Bitcoin is a new asset, albeit one with an intriguing track record.  ERISA Law as well as regulation by the SEC regulate the 401(k) space.  I wonder if Bitcoin could withstand the necessary regulation that ERISA and the SEC would require to be able to be included in a 401(k) Plan lineup?  For now, as an advisor, I would not recommend it.  But, as they say, “never say never.

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