Bitcoin bills abound as Southwest states ponder cryptocurrency investing

Bloomberg News

At an Oklahoma House committee meeting last week, Republican State Rep. Cody Maynard touted bitcoin as one of the best performing assets over the last decade with big annual gains and a way for the state and its public pension funds to diversify their investment portfolios. 

"What we're talking about is, if you take a small allocation, you have now an uncorrelated asset that has a positive return to add to your investable pool," he told the House Government Oversight Committee, which advanced House Bill 1203 in a 12-2 vote.

The Strategic Bitcoin Reserve Act would give the state treasurer the ability to invest up to 10% of certain state funds in bitcoin or any digital asset such as cryptocurrencies with a market capitalization of more than $500 billion, as well as in stablecoins that have received regulatory approval in the United States, the United Kingdom, Japan, or the European Union. State retirement funds would be able to hold such digital assets directly or through an exchange-traded fund.  

Oklahoma is among dozens of states where legislation has been introduced to create digital asset funds or reserves and allow state or public pension fund investments in bitcoin or other cryptocurrencies.

Cryptocurrencies like bitcoin exist as blocks of data that are digitally signed each time they travel from one owner to the next.

The bill barrage comes even as the Government Finance Officers Association and others have advised governments to abstain from accepting, using, or investing in cryptocurrency. 

The movement has been fueled by federal regulatory approval for bitcoin ETFs and backing from President Donald Trump, who signed an executive order in January setting out a policy to support the responsible growth and use of digital assets and creating a working group on digital asset markets.

A Trump-fueled rally, which pushed bitcoin prices over the $100,000 mark, dissipated, sending prices tumbling last month, according to a Coindesk.com index. The president's weekend announcement on Truth Social of a U.S. Crypto Reserve boosted prices.

Since August, the price of one bitcoin has ranged from $54,026 to $106,168 on the CoinDesk index. It was at about $86,125 Monday afternoon.

Todd Kanaster, a S&P Global Ratings analyst, said the creation of the Bitcoin ETFs brought "a little bit of a legitimization of Bitcoin as an investment," although significant allocations into the cryptocurrency by public pension funds are not expected given its volatile and high-risk nature. 

"How Bitcoin volatility impacts credit can take different shapes depending on which pension plan it is," he said. "(We're) going to look at each individual credit and say, 'Hey, what safeguards did they have in place for volatility, or is the credit itself just grasping the volatility to try and achieve return?'"

Giving state pension funds the ability to invest slightly in cryptocurrency could curry political favor from Trump, while minimizing risk to state taxpayers and pensioners, according to Matt Fabian, a partner at Municipal Market Analytics. 

"But because crypto products are purely speculative and do not entail an underlying asset, larger pension allocations would suggest weak system management and could put state taxpayers at undue risk," he said.

Public pension funds have been slow to embrace cryptocurrencies given their minimal record of performance, Keith Brainard, research director at the National Association of State Retirement Administrators, said. 

"As fiduciaries, public pension boards and investment officers are responsible for acting prudently," he said. "Moreover, some public pension funds are quite large. If they're going to go to the trouble of investing in a new asset class, like crypto, they would need to invest enough to 'move the needle,' otherwise such a foray is likely not worth the time and trouble and risk."

In addition to Oklahoma, other Southwest states are looking at jumping on the bitcoin bandwagon.

An amended bill to create a strategic bitcoin reserve received a 9-0 vote from the Texas Senate Business and Commerce Committee on Thursday. At a committee hearing last month, bill author Republican State Sen. Charles Schwertner said it allows the state "to diversify our investment approach, participate competitively in the digital financial economy, and leverage the benefits of Bitcoin and other cryptocurrencies."

The state comptroller would be authorized to acquire, exchange, sell, manage, and retain bitcoin and other cryptocurrencies with a market capitalization of at least $500 billion.

Michael Dorman

Texas Comptroller Glenn Hegar told the committee his office has been leaning in the direction of these alternative investments.  

"A Bitcoin reserve is a natural step for Texas, where innovation ideas are nurtured and pursued," he said. "We believe this bill takes a measured approach to managing a potentially volatile asset, a critical requirement when investing taxpayer dollars."

In Texas, Houston's Firefighters' Relief and Retirement Fund already took the plunge. The retirement system, which has total assets of nearly $5.4 billion, owned shares with a $24.1 million fair value in iShares Bitcoin Trust ETF, according to its latest annual financial report.

The Arizona Senate passed two bills last week, including one allowing the state's pension funds and treasurer to make investments capped at 10% in virtual currency.

Another measure headed to the House for consideration would create a Digital Assets Strategic Reserve Fund administered by the state treasurer and funded with legislative appropriations and digital assets seized by the state.

The Kansas Public Employees Retirement System would have the option to invest in bitcoin exchange-traded products issued by a company registered in the state, under a Senate bill. The investments would be capped at 10% of the fund's total investment assets.

In New Mexico, a proposed Strategic Bitcoin Reserve Act would allow the state's Public Employees Retirement Association and Educational Retirement Board to invest in federally registered exchange-traded products.

A preamble to the legislation states that "bitcoin is increasingly being viewed by states and other nations as a monetary tool to protect against economic shocks and preserve purchasing power and that this tool should be available for the same purposes for the people of New Mexico." 

Under the bill, the state treasurer and state investment council could invest in bitcoin with money from the land grant permanent funds, severance permanent fund, tobacco settlement fund and "any other state fund deemed appropriate by the state investment council." Investments would be capped at 5% of public money in the funds.  

Any digital assets acquired by the funds could be held directly by the treasurer or council through a secure custody solution, on behalf of the state by a qualified custodian, or in the form of an exchange-traded product issued by a federally regulated investment company. 

In Utah, House Bill 230 would authorize the state treasurer to invest up to 5% of the State Disaster Recovery Restricted Account, General Fund Budget Reserve Account, Income Tax Fund Budget Reserve Account, or Medicaid Growth Reduction and Budget Stabilization Account in a digital asset with a $500 billion market capitalization over the previous 12 months or a stable coin.

After passing the House on Feb. 6, the measure advanced out of a Senate committee on Feb. 20.