Bitcoin’s Potential Boost: Political Winds and Investment Strategies
The cryptocurrency landscape is poised for potential shifts, driven by the possibility of a crypto-friendly administration under President-elect Donald Trump and intensified lobbying efforts at the state level. These influences might open the door for increased adoption, possibly leading public pension funds and state treasuries to explore Bitcoin investments. Proponents view Bitcoin as a valuable hedge against inflation, much like gold.
Many Bitcoin supporters argue that government-backed currencies are susceptible to devaluation, and increased investment from governmental bodies could stabilize prices, lending greater legitimacy to the cryptocurrency and potentially boosting its value. However, significant risks remain.
Critics highlight the speculative nature of crypto investments, citing uncertainties in projecting future returns and cautioning investors to prepare for potential losses. Already, only a limited number of public pension funds have ventured into cryptocurrency. Furthermore, a U.S. Government Accountability Office study on 401(k) plan investments in crypto, released late last year, cautioned about its “uniquely high volatility” and noted the absence of a standard method for forecasting crypto’s future returns.
2024: A Landmark Year for Crypto
2024 marked a pivotal year for the crypto space, with Bitcoin briefly surpassing $100,000, and the U.S. Securities and Exchange Commission approving the first exchange-traded funds (ETFs) that hold Bitcoin. Enthusiasts are now betting on Trump’s promise to position the United States as the global “Bitcoin superpower.”
Legislative Developments and Lobbying
Increased crypto-related legislation could be on the horizon. Lawmakers in numerous states are expected to consider crypto-friendly bills this year. Analysts point to the growing influence of the crypto lobby, as Bitcoin miners expand installations and venture capitalists fuel the sector catering to cryptocurrencies.
Simultaneously, a crypto-supportive federal government under Trump and Congress might consider legislation from figures like Sen. Cynthia Lummis, R-Wyoming, to establish a federal Bitcoin reserve, potentially enabling states to leverage this resource.
State-Level Initiatives
In Pennsylvania, a bill introduced in the House of Representatives sought to authorize the state’s treasurer and public pension funds to invest in Bitcoin. Though it didn’t pass before the legislative session ended, the proposal sparked considerable interest. Republican Mike Cabell, the bill’s sponsor, anticipates a colleague will reintroduce the measure.
Satoshi Action, a Bitcoin advocacy group, anticipates legislation based on their model bill will be introduced in at least ten other states within the year.
Pension Funds: Cautious Approach
Keith Brainard, research director for the National Association of State Retirement Administrators, expresses skepticism about widespread adoption by public pension funds, which oversee nearly $6 trillion in assets.
Pension fund professionals are risk-averse when it comes to investments. Bitcoin has a relatively short track record and might fit better in a niche asset class. Brainard said that some pension funds might dabble in Bitcoin, but major commitments aren’t likely.
Louisiana Treasurer John Fleming pioneered a system enabling citizens to pay government agencies using cryptocurrencies. He emphasizes innovation while noting he would not invest his money or the state’s in crypto, citing concerns about its value potentially crashing down. Fleming believes innovation is key, but also notes the volatility of crypto.
In Pennsylvania, Treasury Department officials maintain that they possess the authority to determine whether cryptocurrencies align with the agency’s investment criteria, independent of new legislation. Yet, they view the asset’s volatility as unsuitable, particularly given the need to issue millions of checks annually. The majority of the approximately $60 billion the agency invests at any given time is in conservative, short-term investments.
ETFs and Future Prospects
Pension boards, with longer investment horizons of around 30 years, might already hold modest investments in businesses engaged in mining, trading, and storing cryptocurrencies. Yet, they’ve been slow to embrace bitcoin. However, Mark Palmer, a managing director and senior research analyst at The Benchmark Company in New York, believes this could soon change. The SEC’s approval of Bitcoin ETFs last year provided pension boards with favored investment tools.
Some states have started investing already. In May, the State of Wisconsin Investment Board invested $160 million in two ETFs, which was around 0.1% of its assets, but later reduced this to $104 as of September 30. Michigan’s state investment board revealed approximately $18 million in Bitcoin ETF purchases, while Steven Fulop, a candidate for New Jersey governor, plans to push the state’s pension fund to invest in crypto.
Fulop, the Democratic mayor of Jersey City, has been prepping to buy Bitcoin ETF shares for up to 2% of the city’s $250 million employee pension fund. Fulop said that he thinks pension funds will start to utilize crypto exposure.
