HARRISBURG, Pa. (AP) — The new year will bring in President-elect Donald Trump’s bitcoin-friendly administration and a growing lobbying movement in statehouses that might encourage states to open up to cryptocurrency and encourage public pension funds and treasuries to support it.
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.
However, bitcoin investing has a short track record, may only fit into a specific asset class, and may not meet the risk-to-reward profile that pension fund professionals are looking for.
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 stated that he is not attempting to advocate for cryptocurrencies, but rather views the move as an acknowledgment that the government needs to be creative and adaptable in order to facilitate financial transactions between citizens and the government. He declared that he would never put public funds or his own money into cryptocurrency.
Fleming noted that he recently met with a bitcoin lobbyist and left feeling that bitcoin is not a smart investment.
“I’m worried that it will eventually stop expanding and people will want to make money,” Fleming added. And when they do, the value of a bitcoin might plummet.
According to Treasury Department officials in Pennsylvania, they are empowered to determine whether cryptocurrencies satisfy the agency’s investment requirements under state law and do not require new legislation.
However, given that the agency writes millions of checks annually, a highly volatile asset is not a good fit for its need for predictability. According to authorities there, short-term, conservative investments with a months-long investment period account for the vast majority of the $60 billion it invests at any given moment.
Pension boards may already have modest holdings in businesses engaged in cryptocurrency mining, trading, and storage because they have a 30-year investment horizon. However, their adoption of bitcoin has been sluggish.
According to Mark Palmer, a senior research analyst and managing director of The Benchmark Company in New York, that might change.
The U.S. Securities and Exchange Commission approved the first bitcoin-holding exchange-traded funds this year, and in October, it authorized the listing of options on those funds, giving pension boards access to investment instruments they enjoy, Palmer said.
According to Palmer, many people are probably still learning the ins and outs of investing in bitcoin and rolling the tires, so to speak. At the institutional level, this process usually takes some time.
Bitcoin ETFs are offered by a number of significant asset managers, including BlackRock, Invesco, and Fidelity.
Some states already are investing in crypto
When the State of Wisconsin Investment Board purchased $160 million worth of shares in two ETFs in May—roughly 0.1% of its total assets—it became the first state to make an investment. Later, as of September 30, it reduced that investment to $104 million in a single ETF. A representative refused to comment.
Steven Fulop, a candidate for governor of New Jersey, stated that if elected, he would encourage the state pension fund to invest in cryptocurrency, while the Michigan State Investment Board later revealed that it had spent roughly $18 million on bitcoin ETF purchases.
Just across the Hudson River from Manhattan, Jersey City’s Democratic mayor, Fulop, has been planning for months to purchase shares in bitcoin ETFs for as much as 2% of the $250 million employee pension fund in the city.
According to Fulop, we were ahead of the curve. And I believe that’s what you’re going to see in the end: this is generally acknowledged that there will be some exposure in all pension funds.
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