Your 401(k) is getting lax. Bitcoin will not fix this.

Back in March the Labor Department, which regulates Americans’ retirement savings, attempted to set some limits without introducing new rules. This Retirement planning administrators reminded of his fiduciary duty, expressing “serious concern about the prudence” of putting cryptocurrency into a retirement plan. In the context of pensions, that term has a special meaning: someone who breaches that duty may be held personally liable for losses caused to retirement savers.

The warning wasn’t enough for Fidelity Investments, which manages retirement plans for about 23,000 companies. This said in april That it would allow plans to offer bitcoin in the future. This month the much smaller provider ForUsAll, which last year announced a crypto 401(k), upped the ante. suing the labor department to the point. Labor Secretary Marty Walsh said this week that formal rules banning crypto are being considered, with chief executive Jeff Schulte saying in a release that the department has “winners and losers by attempting to ban entire asset classes.” has no right to choose.”

Except it already does. Collectibles such as stamps, coins, rugs or antiques have long been verbatim. The rules were written before people paid hundreds of thousands of dollars for an ape JPEG, but such an investment would certainly violate the spirit of the rule as well. One exception to the ban on collectibles, and only under strict conditions, has been precious metals.

It’s not hard to see why fans of the asset class rejoice at freeing up mom and pop’s retirement savings on crypto. As of last September, defined-contribution plans—IRA and 401(k) type accounts—had about $37 trillion in assets. The combined market cap of the two major cryptocurrencies, Bitcoin and Ethereum, is just over half a trillion after their recent selloff.

All investments carry risk, but the first major company to allow bitcoin in employee retirement accounts was

micro strategy,

With its chief executive officer, Michael Sailor quoted In Fidelity’s press release, was an unfortunate choice to allay the fears of the regulators. The enterprise software firm has casually bought nearly $4 billion in bitcoin for its own account, borrowing money for its part. As of Thursday, Microstrategy had a market cap of just $1.8 billion and its share price had fallen by nearly two-thirds since Fidelity’s announcement. Mr. Saylor’s reaction to bitcoin’s recent shock was to post a photo of himself with laser eyes on Twitter, indicating a boom in the online crypto community. He also said that Microstrategy can “continue to #HODL through adversity,” a reference to the “hold for dear life” maxim that committed crypto investors to sticking around in tough times.

Enron became the poster boy for how not to run a 401(k) plan two decades ago when it was discovered that 60% of its employees’ nest eggs were in its worthless stock. Combining the security of your job with your retirement is now accepted as reckless and less than 5% of 401(k) assets are in company stock. Microstrategy, which did not respond to questions, will open its employees to similar risks because its share price, and possibly its solvency, is tied to the value of bitcoin.

And volatility isn’t the only risk. Crypto Lender Celsius Network on Sunday freeze clearance And The Wall Street Journal reported that it has hired restructuring lawyers. and crypto exchanges and brokerages

coinbase,

Which serves as a custodian for ForUsAll, in its May securities filing warned that unlike a broker holding stocks or mutual funds, client assets may not be protected in the event of bankruptcy. A ForUsAll spokesperson said that Coinbase’s institutional business “provides additional legal protections and safeguards to protect customer assets in the event of any potential bankruptcy.”

Stacked against all the dangers, there may be a few reasons retirement savers are allowed to own a limited amount of cryptocurrency. The key investing concept is to exit at an “efficient range” — making a portfolio less volatile for the same amount of money by adding uncorrelated assets. Lately bitcoin has acted like a tech stock on steroids, adding to market risk. But it may well march to its own drummer in the future.

On the other hand, the regulatory reasons for restricting collectibles may also apply to bitcoin. Like a rare painting you’re not even allowed to hang on your wall, its investment appeal is that someone will decide it’s worth more than what you paid for in the future. Traditional assets such as stocks, bonds and real estate produce cash flow, which makes it possible to value them. And, until bitcoin makes money obsolete, cash is what you’ll need to live on once you retire.

Shouldn’t people be allowed to fly with their own savings? They already can, but probably not with retirement funds subsidized by taxpayers. Fewer choices can also save people a lot of money and misery.

Retirement giant Vanguard said in a study published last year that 8% of its 401(k) clients have excessive allocations — all stocks or all bonds. More than a third contributed less than their company match, gave away free money, and 13% had borrowed from their accounts, potentially denting returns. And some investors panic-sell when stocks fall — something that can happen more often with volatile assets than with mutual funds.

With most Americans having little or no savings at all, America is already facing a retirement crisis. Bitcoin will not solve this and could make it worse.

write to Spencer Jakab at spencer.jakab@wsj.com