HARRISBURG, Pa. — As we greet the new year, President-elect Donald Trump is expected to bring a more favorable attitude toward bitcoin and other cryptocurrencies. This change in leadership could encourage lawmakers in various states to consider more crypto-friendly policies, perhaps even leading public pension funds to explore investments in these digital assets.
Supporters of bitcoin argue that it provides a worthwhile defense against inflation, much like gold. They often express concerns that government-backed currencies could weaken over time, suggesting that increased acceptance of bitcoin by government entities might stabilize its value and enhance its reputation, potentially boosting prices further.
However, there are significant risks involved. Detractors warn that investing in cryptocurrency is highly speculative. With many uncertainties surrounding its future value, investors must be cautious and prepared for the possibility of losing money.
Currently, only a few public pension funds have ventured into cryptocurrency investments. Recent findings from the U.S. Government Accountability Office highlight that cryptocurrencies display “uniquely high volatility,” and there isn’t a standard method for predicting their future returns.
This past year has already been notable for the cryptocurrency market, with bitcoin reaching a remarkable $100,000. The U.S. Securities and Exchange Commission has also approved the first exchange-traded funds (ETFs) that include bitcoin, further igniting enthusiasm among crypto supporters who are encouraged by Trump’s promise to establish the U.S. as a leader in the global bitcoin arena.
Expect More Crypto Legislation
As more states begin to recognize the lobbying power of cryptocurrencies, we can anticipate a wave of legislation aimed at making them more accessible. Analysts note that bitcoin miners are expanding their operations, while venture capitalists are backing an increasingly robust tech sector focused on crypto.
The new cryptocurrency-friendly federal administration under Trump might consider legislative efforts. For example, Senator Cynthia Lummis from Wyoming has proposed the idea of establishing a federal bitcoin reserve that states could utilize.
In Pennsylvania, a recent proposal sought to allow the state treasurer and public pension funds to invest in bitcoin. Although it didn’t pass, the bill certainly caught attention, generating significant communication among lawmakers. Mike Cabell, a Republican representative and the bill’s sponsor, remarked on the unusual amount of support from his constituents.
Public Pension Funds Are Cautious
Keith Brainard, a research director for the National Association of State Retirement Administrators, addressed the hesitations among public pension fund experts managing nearly $6 trillion in assets. He stated that while there might be some interest in exploring bitcoin, many pension fund professionals prefer to avoid investments in a relatively new and volatile asset class.
In Louisiana, Treasurer John Fleming has taken steps to allow state payments through cryptocurrencies. However, he emphasized that he does not support investing state funds in crypto, expressing concerns about potential declines in bitcoin’s value if too many individuals rush to cash in.
Pennsylvania Treasury officials have clarified that they believe they already have the authority to determine if cryptocurrencies align with their investment guidelines, without needing new legislation.
Given the unpredictable nature of cryptocurrencies, they may not meet the reliability needed for the state’s financial operations, which involve millions in transactions each year. Although pension boards typically invest on a long-term horizon and might have partial interests in related companies, they remain cautious about embracing bitcoin completely.
Yet, as the landscape evolves, investment tools like bitcoin ETFs could prompt pension boards to consider this digital currency more seriously. Major asset management firms have started offering bitcoin ETFs, indicating a shift in strategy among institutional investors as they learn more about how to incorporate bitcoin into their portfolios.
States Taking the Lead
This year, Wisconsin became the first state to invest in cryptocurrencies by purchasing $160 million in shares of two ETFs. Michigan followed suit with a reported $18 million investment in bitcoin ETFs, and there are proposals in New Jersey advocating for similar investments by the state pension fund.
Steven Fulop, the mayor of Jersey City and a candidate for governor, has expressed his intention to push for investing a portion of the city’s employee pension fund into bitcoin ETFs, indicating a trend towards broader acceptance of cryptocurrency within state funds.
