President-elect Donald Trump’s bitcoin-friendly administration and a growing lobbying movement in statehouses could encourage states to open up to cryptocurrency and encourage public pension funds and treasuries to support it in the next year.
Supporters of the unusually volatile commodity contend that, like gold, it is a useful inflation hedge.
Many investors and bitcoin aficionados are quick to attack government-backed currencies as being prone to depreciation. They also claim that more official support will calm future price fluctuations, lend credibility to bitcoin, and further increase its already rising value.
However, there are serious hazards. Critics caution that investors should be ready to lose money because investing in cryptocurrencies is very speculative and there is a lot of uncertainty around potential returns.
Only a few public pension funds have made cryptocurrency investments, and a recent study by the U.S. Government Accountability Office on 401(k) plan investments in cryptocurrency warned that it has exceptionally high volatility and that there is no standard method for predicting its future returns.
With bitcoin reaching $100,000, the U.S. Securities and Exchange Commission approving the first exchange-traded funds that contain bitcoin, and cryptocurrency aficionados applauding Trump’s pledge to make the US the world’s bitcoin superpower, this year has already been historic.
More legislation on crypto could be coming
Since analysts predict that cryptocurrency is becoming a powerful lobby, bitcoin miners are building new installations, and venture capitalists are funding a rising tech industry that caters to cryptocurrencies, lawmakers in more states should anticipate seeing proposals in 2025 to make them more crypto-friendly.
Meanwhile, Sen. Cynthia Lummis, R-Wyoming, has proposed legislation to establish a federal bitcoin reserve that states can support under a future, crypto-friendly federal government led by Trump and Congress.
A bill to allow the state treasurer and public pension funds to invest in bitcoin was presented to the Pennsylvania House of Representatives last month. It created a commotion, but it didn’t accomplish anything before the legislative session concluded.
The measure’s sponsor, Republican Mike Cabell, said, “I had a friend who is a representative down the road text me, Oh my god, I’m getting so many emails and phone calls to my office,” more than he had ever received on any other issue.
Bitcoin enthusiast Cabell, who lost his attempt for reelection, anticipates that a colleague will revive his bill. Additionally, the directors of Satoshi Action, an advocacy group for bitcoin, said they anticipate that at least ten additional states would file measures modeled after theirs next year.
But what about public pension funds?
The National Association of State Retirement Administrators’ research director, Keith Brainard, stated that he does not anticipate many public pension fund investment experts, who manage assets worth close to $6 trillion, making cryptocurrency investments.
Pension fund professionals take risks they deem to be appropriate, but bitcoin investing has a short track record, might only fit into a niche asset class and may not fit the risk-to-reward profile they seek.
According to Brainard, there may be some bitcoin experimenting. However, it’s hard to imagine a situation where pension funds are currently prepared to commit.
Treasurer John Fleming was instrumental in Louisiana being the first state to implement a cryptocurrency payment system for government agencies.
Fleming said he s not trying to promote cryptocurrency, but rather sees the step as a recognition that government must innovate and be flexible in helping people make financial transactions with the state. He said he would never invest his money, or the state s, in crypto.
Fleming recalled meeting with a bitcoin lobbyist recently and came away unconvinced that bitcoin makes for a good investment.
My concern is that at some point it ll stop growing and then people will want to cash in, Fleming said. And when they do, it could tank the value of a bitcoin.
In Pennsylvania, Treasury Department officials said they have the authority to decide for themselves if cryptocurrencies meet the agency s investment standards under state law and don t need new legislation.
Still, a highly volatile asset is ill-suited to the agency s need for predictability, considering it writes millions of checks a year. The overwhelming majority of the roughly $60 billion it invests at any given time is in short-term, conservative investments designed for an investment period of months, officials there said.
Pension boards, which invest on a 30-year time horizon, may already hold small investments in companies involved in mining, trading and storing cryptocurrencies. But they have been slow to embrace bitcoin.
That could change, said Mark Palmer, managing director and a senior research analyst at The Benchmark Company in New York.
Pension boards got investment tools they like this year when the U.S. Securities and Exchange Commissionapprovedthe first exchange-traded funds that hold bitcoin and, in October, approved listings of options on those funds, Palmer said.
Many are likely in the process of getting up to speed on what it means to invest in bitcoin and kicking the tires, so to speak, and that s a process that typically takes a while at the institutional level, Palmer said.
Several major asset managers like BlackRock, Invesco and Fidelity have bitcoin ETFs.
Some states already are investing in crypto
In May, the State of Wisconsin Investment Board became the first state to invest when it bought $160 million worth of shares in two ETFs, or about 0.1% of its assets. It later scaled back that investment to $104 million in one ETF, as of Sept. 30. A spokesperson declined to discuss it.
Michigan s state investment board later reported about $18 million in bitcoin ETF purchases while a candidate for New Jersey governor, Steven Fulop, said that if elected he would push the state s pension fund to invest in crypto.
Fulop, the Democratic mayor of Jersey City, just across the Hudson River from Manhattan, has been preparing for months to buy bitcoin ETF shares for up to 2% of the city s $250 million employee pension fund.
We were ahead of the curve, Fulop said. And I think that s what you re eventually going to see is this is widely accepted, with regard to exposure in all pension funds, some sort of exposure.
— Marc Levy, The Associated Press
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