HARRISBURG, Pa. — As the new year approaches, the administration of President-elect Donald Trump is set to embrace cryptocurrency, particularly bitcoin, which could lead to a surge of support for digital currencies across various state legislatures. Observers are noting that increasing lobbying efforts may encourage states to be more receptive to cryptocurrencies and entice public pension funds and treasuries to invest in them.
Proponents of bitcoin believe in its potential as a safeguard against inflation, likening it to gold. Many bitcoin supporters are critical of government-backed currencies, claiming they are susceptible to devaluation. They argue that greater government participation in the cryptocurrency arena could result in stabilizing bitcoin’s often drastic price fluctuations, solidifying its legitimacy, and potentially driving its value even higher.
However, experts caution about the substantial risks involved. Critics consider investments in cryptocurrency to be highly speculative, full of uncertainty regarding future returns, and advise investors to be mentally prepared for potential losses. Currently, only a handful of public pension funds have ventured into crypto investments. A recent study from the U.S. Government Accountability Office highlighted the “uniquely high volatility” of cryptocurrencies and stated there’s no standard method for estimating their future returns.
This year has already been pivotal for the cryptocurrency landscape, with bitcoin recently touching the $100,000 mark. The U.S. Securities and Exchange Commission has approved the first exchange-traded funds for bitcoin, and crypto advocates are buoyed by Trump’s commitment to positioning the United States as a global leader in bitcoin.
As analysts suggest that cryptocurrencies are forming a powerful lobby, more states may see proposed legislation in 2025 aimed at creating a more favorable environment for digital currencies. Ventures into cryptocurrency are further propelled by bitcoin miners setting up new operations and venture capitalists financing a burgeoning tech sector that supports digital currencies.
With a pro-crypto federal government on the horizon under Trump, potential legislation could include a proposal from Senator Cynthia Lummis of Wyoming to establish a federal bitcoin reserve that states could utilize. Last month, a bill in Pennsylvania attempted to allow the treasurer and public pension funds to invest in bitcoin, although it ultimately did not progress before the legislative session ended. The proposal generated significant interest, according to Republican Mike Cabell, the bill’s sponsor.
Cabell, a bitcoin supporter who did not win reelection, anticipates that his bill will be reintroduced by a colleague. Meanwhile, leaders from the bitcoin advocacy group Satoshi Action predict similar measures based on their model bill will emerge in at least ten more states next year.
Regarding the involvement of public pension funds, experts do not expect many investment professionals controlling nearly $6 trillion in assets to lean towards cryptocurrencies. Keith Brainard, research director for the National Association of State Retirement Administrators, noted that while some might experiment with bitcoin, a commitment to such investments appears unlikely at this time.
In Louisiana, Treasurer John Fleming took steps to enable transactions with state agencies using cryptocurrencies, although he clarified that he is not advocating for crypto investments. Fleming expressed skepticism about bitcoin’s long-term growth, raising concerns about what might happen when investors attempt to liquidate their holdings.
Pennsylvania Treasury Department officials have stated they possess the discretion to determine if cryptocurrencies meet investment standards as permitted by state law, implying new legislation may not be necessary. Nonetheless, these highly volatile assets may not align with the agency’s need for predictability given its extensive volume of financial transactions.
Pension boards, which typically take a long-term 30-year investment perspective, may already have minor stakes in companies engaged in cryptocurrency-related activities but have shown hesitance toward investing directly in bitcoin. Looking ahead, however, experts like Mark Palmer from The Benchmark Company in New York believe that recent approvals from the SEC for bitcoin ETF tools could increasingly attract the interest of pension boards as they take the time to explore investments in this area.
Multiple significant asset management firms, including BlackRock, Invesco, and Fidelity, now offer bitcoin ETFs. Several states have already begun allocating resources towards crypto investments. For instance, Wisconsin made headlines in May when it became the first state to inject $160 million into two ETFs before scaling back recently.
Michigan’s state investment board later reported an investment of around $18 million in bitcoin ETFs. Additionally, Steven Fulop, a candidate for the New Jersey governorship, has plans to encourage investments from the state’s pension fund in cryptocurrencies, asserting that Jersey City has been proactive in this financial frontier.
“We were ahead of the curve,” stated Fulop, emphasizing that he anticipates a broader acceptance of cryptocurrency within pension funds in the coming years.
