You misunderstand it. The holding is not illiquid. It's fully liquid, it's just that Peter and Max's access to the cash proceeds aren't. If someone buys the shares in the Roth, their position is fully liquid: they can sell the next day and use the cash for anything. And the sellers can take the cash and use it for anything that looks like an investment. Like, invest it into another company, or into real estate (like a mansion or yatch)

That's wrong. Holding something in an IRA doesn't prevent you from selling it, only from taking the proceeds and putting them in your personal checking. The proceeds continue to be property of the IRA/401k, and can be re-invested elsewhere, without incurring a taxable event.

You can day-trade in your self-directed 401k or IRA until you're broke or Thiel-level rich, and the IRS will never get involved.

I mostly agree with the top-level comment, here; ProPublica is losing a lot of credibility for their mildly misleading and black-and-white framing of these tax issues, and I'm someone who genuinely believes that wealth inequality is a problem that can and should be addressed by the state.

Can one hold and trade crypto in such a vehicle?

Theoretically, yes. You'd have to use a self-directed IRA, but it can be done.

I do

In Theil’s and Max’s case, the proceeds account for 99.9% of the account’s value, no? The investments appreciated over 100x. Thus the entire position is locked up / faces withdrawl penalty. Maybe the position could be liquidated but the ROI would be lower. As a VC, the action signals such a friendly relationship with the founder that the VC doesn’t care about the returns. That materially affects incentives—- especially voting incentives.

You're still misunderstanding how the retirement trust works: selling shares does not imply a withdrawal, it just means that instead of owning stock, the retirement account now owns cash. Because selling is not a withdrawal, there is no withdrawal penalty, and no influence on the trustee's ability or willingness to sell.