By Marc Levy, Associated Press
HARRISBURG, Pa. (AP) – President-elect Donald Trump’s Bitcoin-minded administration and increased lobbying efforts in state legislatures are leading to states becoming more open to cryptocurrencies, including public pension funds and Treasury departments. may begin to purchase virtual currency.
Proponents of this uniquely volatile commodity argue that, like gold, it is a valuable hedge against inflation.
Many Bitcoin enthusiasts and investors believe that government-backed currencies tend to decline in value, and that increased government purchases would stabilize future price movements, increasing Bitcoin’s legitimacy and increasing its already rising value. That’s going to push up prices right away.
But the risks are significant. Critics say crypto investing is highly speculative and there are many unknowns about predicting future returns. They warn investors should brace themselves for losses.
Only a few public pension funds invest in cryptocurrencies. A U.S. General Accounting Office investigation into 401(k) plan investments in cryptocurrencies released late last year warned that the plans have “uniquely high volatility.” No standard approach was found to predict future profits of cryptocurrencies.
2024 was a landmark year for cryptocurrencies, with the price of Bitcoin exceeding $100,000. The U.S. Securities and Exchange Commission has approved the first exchange-traded fund to hold Bitcoin. Cryptocurrency enthusiasts are now counting on President Trump’s promise to make the United States the world’s “Bitcoin superpower.”
Further legislation regarding cryptocurrencies may be enacted
More state legislators are expected to introduce crypto-friendly bills this year. Analysts say cryptocurrencies are becoming a powerful lobbying force. Bitcoin miners are building new facilities and venture capitalists are underwriting the growing tech sector that supports cryptocurrencies.
Meanwhile, a new crypto-friendly federal government under President Trump and Congress is considering a bill by Sen. Cynthia Lummis (R-Wyo.) to create a federal Bitcoin reserve that states could piggyback on. There is a possibility that
A bill introduced in the Pennsylvania House of Representatives in November would authorize the state treasurer and public pension funds to invest in Bitcoin. Although the issue was not resolved by the end of the legislative session, it caused a stir.
“I recently received an email from a friend who is a rep who said, “Oh my god, I’m getting so many emails and phone calls in my office,” more than any other bill. ” said the bill’s sponsors. , Republican Mike Cavell.
Cavell, a Bitcoin enthusiast who lost re-election, hopes his colleagues will reintroduce the bill. Leaders of the Bitcoin advocacy group Satoshi Action said they expect at least 10 other states to introduce bills based on the model bill this year.
But what will happen to public pension funds?
Keith Brainard, research director at the National Association of State Retirement Administrators, said he does not expect many investment professionals at public pension funds, which manage nearly $6 trillion in assets, to invest in cryptocurrencies. .
Pension fund professionals take risks as they see fit, but Bitcoin investing has a limited track record, may only fit into a niche asset class, and may not fit the risk-reward profile they seek. be.
“I might dabble in Bitcoin a little bit,” Brainard said. “However, it is difficult to envision a scenario in which pension funds would actively commit at this point.”
Louisiana Treasurer John Fleming was instrumental in introducing the state’s first system to allow people to pay government agencies with cryptocurrencies.
Fleming said he is not trying to promote cryptocurrencies, but rather sees them as a recognition that governments must innovate and be flexible to help people transact with the nation. . He said he would never invest his own funds or the country’s funds in cryptocurrencies.
“My concern is that at some point the growth will stop and people will want cash,” Fleming said. “And if that happens, the value of Bitcoin could collapse.”
In Pennsylvania, Treasury officials said they have the authority to decide for themselves whether virtual currencies meet the department’s investment standards under state law and no new legislation is needed.
Still, highly volatile assets are ill-suited to the agency’s need for predictability, given the millions of checks it writes each year. The overwhelming majority of the roughly $60 billion that the company invests at any given time is short-term, conservative investments with investment periods of several months, the officials said.
Pension boards that invest with a 30-year horizon may already have small investments in companies involved in mining, trading and storing cryptocurrencies. However, they were slow to accept Bitcoin.
Mark Palmer, managing director and senior research analyst at Benchmark Company in New York, said that could change.
Last year, pension boards gained a preferred investment tool when the U.S. Securities and Exchange Commission approved the first exchange-traded fund to hold Bitcoin. Palmer said he approved options listings for these funds in October.
“I think a lot of people are starting to understand what it means to invest in Bitcoin and kicking the tires, so to speak, and that process typically takes time at the institutional level,” Palmer said. Ta.
Several major asset management companies, including BlackRock, Invesco, and Fidelity, own Bitcoin ETFs.
Some states are already investing in cryptocurrencies
In May, the Wisconsin Investment Commission purchased $160 million worth of shares (about 0.1% of assets) in two ETFs, becoming the first state to do so. It has since scaled back its investments to $104 million in one ETF as of Sept. 30, a spokesperson declined to discuss.
Michigan Investment Commission reports nearly $18 million in Bitcoin ETF purchases, and New Jersey gubernatorial candidate Stephen Fulop will encourage state pension funds to invest in cryptocurrencies if elected said.
Mr. Fulop, the Democratic mayor of Jersey City, just across the Hudson River from Manhattan, has made several preparations to buy Bitcoin ETF shares worth up to 2% of the city’s $250 million employee pension fund. I’ve been working on it for months.
“We were ahead of the curve,” Fulop said. “And I think we’ll eventually see this become widely accepted as a type of exposure in terms of exposure across all pension funds.”
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First published: January 20, 2025, 5:32 a.m. EST
