Almost half of the state governments in the U.S. are either on a path toward allocating some of their funds into cryptocurrencies or have already done so. This growing interest in linking their financial futures to the digital-assets markets has been notably fueled by former U.S. President Donald Trump’s support for the establishment of a national stockpile of digital assets.
A recent analysis by CoinDesk highlights that 21 states are presently investing or exploring investments in cryptocurrencies, primarily in Bitcoin (BTC), and occasionally in stablecoins aimed at mirroring the U.S. dollar’s value. States like Arizona, Pennsylvania, Utah, and Texas are advancing legislation to facilitate public funds purchasing cryptocurrencies, potentially putting state-level initiatives ahead of congressional efforts towards a strategic bitcoin reserve.
Sixteen state legislatures are currently considering Bills that would either institute digital assets stockpiles or permit their state retirement funds to engage partially in crypto investments, with many of these proposals emerging recently. Officials in three additional states are engaged in serious discussions about similar initiatives, while the financial managers for Michigan and Wisconsin have already invested parts of their public employees’ retirement portfolios into crypto exchange-traded funds (ETFs).
If state governments redirect portions of their public funds into Bitcoin and other digital assets, it could lock away billions of dollars in tokens for extended durations, consequently raising the value of these assets still in the market. This move might also inadvertently expose millions of citizens to the financial health of the crypto sector, regardless of their personal interest in it.
Many of these legislative initiatives are designed to trail the efforts of Michigan and Wisconsin by allocating parts of their retirement funds and pension investments into digital assets. Public employees, including retired school teachers and law enforcement officers, will witness their financial futures becoming contingent on the volatility of the cryptocurrency markets.
Some proposed laws may direct state treasurers to invest as much as 10% of public funds into a strategic reserve, with conditions that qualifying digital assets possess a minimum market capitalization of $500 billion, which currently only Bitcoin satisfies.
Arizona and Utah have gained momentum after successfully passing their proposals through legislative committees. Other states considering cryptocurrency legislation include Illinois, Indiana, Kansas, Massachusetts, Missouri, Montana, New Hampshire, North Dakota, Ohio, Oklahoma, South Dakota, and Wyoming. States like Alabama, Florida, and Kentucky are also on the brink of exploring additional proposals. Notably, this wave of interest is predominantly found in states with Republican-majority legislatures, with lawmakers citing the need for investment diversity and the importance of embracing technological innovation.
Should states amass significant reserves in crypto assets, their allocation could eventually be overshadowed by the federal government’s reserve, should such an initiative materialize. President Trump, in a broader executive order addressing U.S. cryptocurrency policy, advocated for evaluations regarding establishing a national digital asset stockpile, potentially formed from government-seized cryptocurrency due to criminal activities.
The plan was initially proposed by Senator Cynthia Lummis, a staunch supporter of crypto and the first chair of the Senate Banking Committee’s digital assets subcommittee. Her initiative calls for the U.S. to acquire approximately $20 billion in Bitcoin within the first year and to continue accumulating tokens over the subsequent four years, aiming for a total of one million Bitcoin held by the U.S.
While Lummis describes this endeavor as a ‘Strategic Bitcoin Reserve,’ it contrasts with reserves like the petroleum reserve that are designed for use during economic upheavals, as it is set more as a long-term investment requiring at least a 20-year holding timeframe.
This would amount to nearly 5% of the ultimate finite global Bitcoin supply being inaccessible for two decades. Combined with state-level stockpiles, the U.S. government could control a significant percentage of Bitcoin assets, in addition to large reserves already held by institutional ETF issuers like BlackRock and Grayscale, as well as corporate investors such as MicroStrategy.
The growing state interest in Bitcoin signals a shift as this once-off-the-books financial tool transitions into the core governmental framework. The Bitcoin White Paper aimed to create a transaction system independent of traditional financial intermediaries and government control.
States managing Bitcoin funds through legislation could emerge as some of the most stable institutional investors within the crypto industry. By labeling Bitcoin as a ‘strategic reserve,’ these tokens gain status comparable to gold and oil as critical economic assets, despite the inherent challenges cryptocurrencies face as reliable inflation hedges.
For citizens and public employees, states engaging in crypto stockpiling might yield two possible outcomes: greater financial security for millions or significant losses due to potential crypto crashes threatening critical safety nets.
Critics warn against these risks, with Dennis Kelleher, CEO of Better Markets, stating, “It could be disastrous for tens of millions of retirees if government officials gambled with state pension funds to buy Bitcoin or crypto.” He referred to the notion of a government Bitcoin stockpile as a “brazen attempt by crypto billionaires and their political allies” to leverage taxpayer money to fabricate demand for volatile assets that lack social legitimacy and have become a haven for criminal activity.
Wager predictions on platforms like Polymarket currently place the chances of a state beginning to reserve Bitcoin before the end of this month at 11%, while the probabilities for establishing a national reserve at the federal level this year are at 45%.
The inclination of governments, both within the U.S. and globally, toward Bitcoin may well evolve into a trend that is impossible to overlook. As noted by Fidelity Digital Assets researchers, they anticipate that “more nation-states, central banks, sovereign wealth funds, and government treasuries will look to establish strategic positions in Bitcoin” in response to the hurdles posed by inflation, currency debasement, and expansive fiscal deficits.
