Bitcoin’s 2024 Surge Sets the Stage for State-Level Crypto Policies in 2025

The new year will usher in a pro-bitcoin administration of President-elect Donald Trump and a growing state lobbying effort that together could push states to become more open to crypto and encourage pension funds and public treasuries to join.

Supporters of this particularly volatile commodity say it is a valuable hedge against inflation, like gold.

Many Bitcoin enthusiasts and investors are quick to criticize government-backed currencies as being prone to devaluation and argue that increased government buy-in will stabilize future Bitcoin price fluctuations, give it more legitimacy and increase another price already on the rise.

But the risks are significant. Critics say a crypto investment is highly speculative, with so much uncertainty about projecting its future returns, and warn that investors should be prepared to lose money.

Only a few public pension funds have invested in cryptocurrency and a new U.S. Government Accountability Office study of 401(k) plan investments in crypto, released in recent days, warned that it presents a “particularly high volatility” and that she had not found any standard approach to projecting. future returns of crypto.

It’s already been a historic year for crypto, with bitcoin hitting $100,000, the U.S. Securities and Exchange Commission approving the first exchange-traded funds to hold bitcoin, and crypto enthusiasts applauding Trump’s promise to making the United States the “bitcoin superpower” of the world.

More crypto legislation could be coming

Lawmakers in more states can expect to see bills in 2025 to make them crypto-friendly, as analysts say crypto is becoming a powerful lobby, as miners Bitcoin companies are building new facilities and venture capitalists are backing a growing technology sector that caters to cryptocurrencies.

Meanwhile, a new crypto-friendly federal government under Trump and Congress could consider legislation from Sen. Cynthia Lummis, R-Wyoming, to create a federal bitcoin reserve that states can draw on.

A bill introduced last month in the Pennsylvania House of Representatives sought to authorize the state treasurer and public pension funds to invest in bitcoin. It came to nothing before the end of the legislative session, but it caused a stir.

“I had a rep friend text me, ‘Oh my gosh, I’m getting so many emails and phone calls to my office,’ more than he ever did at about any other bill,” said the measure’s sponsor. , Republican Mike Cabell.

Cabell – a Bitcoin enthusiast who lost his re-election bid – expects his bill to be reintroduced by a colleague. And leaders of the Bitcoin advocacy group Satoshi Action say they expect bills based on their model law to be introduced in at least 10 more states next year.

But what about public pension funds?

Keith Brainard, research director for the National Association of State Retirement Administrators, said he doesn’t expect many investment professionals at public pension funds, which oversee nearly $6 trillion of assets, invest in crypto.

Pension fund professionals take risks they deem appropriate, but bitcoin investing has a short history, might only fit into a niche asset class, and might not fit the risk profile – reward they seek.

“There might be a little trial in Bitcoin,” Brainard said. “But it is difficult to envisage a scenario in which pension funds would be prepared to engage at present.”

In Louisiana, Treasurer John Fleming helped make the state the first to introduce a system that allowed people to pay a government agency in cryptocurrencies.

Fleming said he was not trying to promote cryptocurrency, but rather saw the move as recognition that the government needs to innovate and be flexible to help people conduct financial transactions with the state . He said he would never invest his money, or that of the state, in crypto.

Fleming recalls recently meeting with a bitcoin lobbyist and is not convinced that bitcoin is a good investment.

“My concern is that at some point the growth will stop and then people will want to take advantage of it,” Fleming said. “And when they do, it could cause the value of a bitcoin to drop.”

In Pennsylvania, Treasury Department officials said they had the authority to decide for themselves whether cryptocurrencies met the agency’s investment standards under state law and did not have to no need for new legislation.

Yet a highly volatile asset is ill-suited to the agency’s need for predictability, given that it issues millions of checks a year. The overwhelming majority of the roughly $60 billion invested at any given time are conservative, short-term investments designed for an investment period of several months, officials said.

Pension boards, which invest over a 30-year horizon, may already hold small investments in companies involved in mining, trading and storing cryptocurrencies. But they were slow to adopt Bitcoin.

That could change, said Mark Palmer, managing director and senior research analyst at The Benchmark Company in New York.

Pension funds got the investment tools they love this year when the U.S. Securities and Exchange Commission approved the first exchange-traded funds holding Bitcoin and, in October, approved the listing of options on those funds, Palmer said.

Many “are probably just getting to grips with what it means to invest in Bitcoin and kick the tires, so to speak, and it’s a process that usually takes some time at the institutional level,” Palmer said.

Several large asset managers like BlackRock, Invesco and Fidelity have Bitcoin ETFs.

Some states are already investing in crypto

In May, the Wisconsin State Investment Board became the first state to invest by purchasing $160 million worth of shares in two ETFs, or about 0.1% of its assets. He then reduced this investment to $104 million in an ETF, as of September 30. A spokesperson declined to discuss it.

The Michigan State Investment Council later reported about $18 million in Bitcoin ETF purchases, while a New Jersey gubernatorial candidate, Steven Fulop, said that if he was elected, he would push the state pension fund to invest in crypto.

Fulop, the Democratic mayor of Jersey City, just across Manhattan, has been preparing for months to buy Bitcoin ETF shares for up to 2% of the city’s $250 million workers’ pension fund. of dollars.

“We were ahead of the curve,” Fulop said. “And I think that’s what you’re ultimately going to see is that it’s widely accepted, in terms of exposure across all pension funds, some sort of exposure.”