Cryptocurrency’s Potential Infiltration of Public Funds
The confluence of a politically favorable environment and a growing lobbying push could open the door for crypto adoption by state governments. Proponents claim bitcoin is a valuable inflation hedge, akin to gold. They argue government-backed currencies are susceptible to devaluation, suggesting that increased government involvement will lend legitimacy. However, significant risks exist. Critics highlight the speculative nature of crypto investments and the inherent uncertainty regarding future returns, warning potential investors to be prepared for the possibility of financial loss.
The Political Landscape
Analysts say crypto is becoming a potent lobbying force. Bitcoin miners are establishing new installations, and venture capitalists are backing a growing tech sector centered on cryptocurrencies. A new crypto-friendly federal government, under Trump, could consider legislation from Sen. Cynthia Lummis, R-Wyoming, to create a federal bitcoin reserve. A bill introduced in November in Pennsylvania’s House sought to authorize state officials to invest in bitcoin.
“I had a friend who is a rep down the road text me, ‘Oh my god, I’m getting so many emails and phone calls to my office,’ more than he ever did about any other bill,” said Republican Mike Cabell, the measure’s sponsor. Cabell expects a colleague to reintroduce his bill.
Leaders of the Satoshi Action advocacy group anticipate legislation based on their model being introduced in at least 10 other states this year.
Investment Perspectives and Practices
Keith Brainard, research director for the National Association of State Retirement Administrators, doesn’t expect many pension fund investment professionals, who oversee nearly $6 trillion in assets, to invest in crypto, due to the short track record and niche asset class.
Louisiana Treasurer John Fleming views cryptocurrency as an innovation that helps people do business with the state. He said he would never invest his money, or the state’s, in crypto. “My concern is that at some point it’ll stop growing and then people will want to cash in,”
In May, the State of Wisconsin Investment Board became the first state to invest, buying shares in two ETFs. This number scaled back later to one ETF. Michigan’s state investment board reported bitcoin purchases, while a candidate for New Jersey governor, Steven Fulop, said he would push the state’s pension fund to invest in crypto. Fulop has been preparing to buy bitcoin ETF shares for up to 2% of the city’s employee pension fund.
That could change, said Mark Palmer, managing director and research analyst at The Benchmark Company in New York. Pension boards received better investment tools last year when the U.S. Securities and Exchange Commission approved the first exchange-traded funds that hold bitcoin. In October, it approved listings of options on those funds, Palmer said. Some states are already investing in crypto, and the trend appears to be continuing.
