Texas, Ohio, and Pennsylvania to create the state-level Bitcoin reserves. What are these bills?

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As a seasoned analyst with over two decades of experience in the financial markets, I find myself intrigued by this latest development in the Bitcoin landscape – local Bitcoin reserves being proposed by various U.S states.

Approximately three U.S. states are predicted to establish their own Bitcoin reserves shortly, departing from the concept of the National Bitcoin Reserve proposed in America. These bills showcase unique regional characteristics instead.

It’s widely believed that approximately 20% of Americans currently hold some form of Bitcoin. With the U.S. President advocating for a national strategic Bitcoin reserve, and individual states moving towards local reserves, there seems to be a growing interest in Bitcoin among American authorities. Proposals to establish such reserves in Ohio and Texas are nearing approval, and Pennsylvania is following suit, while other states are deliberating on similar initiatives.

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What are the specs of the local proposals compared to the federal bill?

The main distinction is that the local proposals have different end goals if compared to the federal-level proposal. The federal bill is aimed to cover the national debt and calls for purchasing one million BTC that should be stored in the U.S. Treasury. 

As a crypto investor, I’m keeping an eye on the Texas legislation that’s designed to amass bitcoins through tax and donation collections in cryptocurrency. Notably, Texas has implemented a five-year restriction on selling any state-owned bitcoins. States like Ohio and Pennsylvania are considering following suit as a protective measure against the devaluation of the USD by acquiring some BTC. The bills are vague about the specifics, but it appears that local treasuries will be responsible for purchasing these digital assets.

The Cynthia Lummis bill

In July 2024, Senator Cynthia Lummis from Wyoming put forward a bill known as the Boosting Innovation, Technology and Competitiveness through Optimized Investment Nationwide (BITCOIN) Act. This legislation aims to help reduce the U.S. national debt.

Beyond discussing national debt, Lummis brings up rapidly increasing inflation rates in his opening remarks, likening the establishment of a Bitcoin reserve to the Louisiana Purchase – a significant historical event. This analogy, where massive Bitcoin acquisitions are likened to past land purchases in America, has gained traction among Bitcoin maximalists as a common comparison.

As proposed by Lummis, Bitcoin could serve as an extra form of value held in the government’s assets. The bill suggests creating a decentralized Bitcoin storage system managed by the U.S. Treasury, similar to a network of Bitcoin vaults. Moreover, the proposal includes purchasing approximately 1 million Bitcoins, equivalent to about 5% of its total supply. This percentage is comparable to the U.S.’s current ownership of gold, which stands at around 5%. Lastly, the bill advocates for granting private Bitcoin holders the right to self-custody their assets.

The local bills

Texas and Ohio’s local legislation do not explicitly plan to buy a specific quantity of Bitcoin within a given timeframe, nor is their purpose to erase state debts.

🇺🇸 STRATEGIC #BITCOIN RESERVE IS NOW OFFICIALLY HAPPENING IN TEXAS.

WHAT A TIME TO BE ALIVE 🤯

— Vivek⚡️ (@Vivek4real_) December 12, 2024

Texas State Representative Giovanni Capriglione presented a new bill on December 12th. This bill proposes an option for local residents to pay their taxes using cryptocurrency. Furthermore, it allows Texans to donate cryptocurrency directly to the state, with all donated crypto being converted into Bitcoin.

Texas plans to gather bitcoins primarily through donations, taxes, and other forms of payment to government entities. These collected Bitcoins will be kept offline for a minimum of five years without being touched. Similar to Representatives Lummis and Capriglione, inflation was identified as a significant threat when discussing the importance of a Bitcoin reserve. Texas has been appealing to Bitcoin miners due to its low electricity costs and various incentives.

In a CNBC interview on December 24, Eli Cohen, Centrifuge’s general counsel, expressed that the process of implementation could potentially be difficult due to issues related to collecting taxes in Bitcoin and identifying taxpayers. He suggests that requiring taxpayers to disclose their Bitcoin wallets might meet resistance from those being asked, as they may feel hesitant to comply.

🚨Today, I submitted HB 703 to establish the Ohio Bitcoin Reserve within the state treasury! This bill empowers the state treasurer with the authority and freedom to invest in Bitcoin.

This legislation sets up a system for the Ohio government to utilize Bitcoin’s potential, enhancing our…

— Derek Merrin (@DerekMerrin) December 17, 2024

On December 17th, Representative Derek Merrin presented an Ohio bill called the Ohio Bitcoin Reserve Act. This act proposes that the state’s treasury would establish a Bitcoin fund and could invest funds in Bitcoin. Bitcoin is viewed as a safeguard against the devaluation of the US dollar. Unlike the Lummis proposal, this bill does not specify any particular Bitcoin purchases or allocations. Ohio, with its $72.16 billion debt (as of 2022), might use this BTC reserve for debt redemption. Legislators will continue to refine this bill in 2025.

In a move made last November, a proposal for Pennsylvania, termed as the bill, was put forward. The main idea behind this bill is to empower the state to allocate up to 10% of its State General Fund towards Bitcoin investment. This could potentially translate into an investment of about one billion dollars in Bitcoins, aimed at combating inflation.

Will these bills pass?

The bills previously discussed have been proposed, but there’s no certainty they’ll be approved. Typically, just 20% of proposed state-level bills end up as laws. This percentage is even lower in states like Texas, Ohio, and Pennsylvania. As per the New Healthcare Bill Acts, only 4.5% of the bills introduced to the 115th Congress were enacted into law. In other words, the likelihood isn’t particularly high. However, in practice, a variety of factors come into play, including the tenacity of lobbyists. Cohen considers Lummis to be a strong supporter of Bitcoin with relevant experience, and her bill appears promising.

Despite the Lummis Act appearing promising, there are concerns that it might not pass through Congress. The crypto community itself voices some criticism towards it. For example, a well-known crypto commentator named Nic Carter, expresses concern about the potential impact of the act. He argues that while the Bitcoin stockpile (the bitcoins seized by authorities) could be advantageous, establishing a strategic Bitcoin reserve (acquired by the government) might not boost the dollar’s value as some proponents suggest, but rather have an opposite effect.

It’s evident why this decision is being made: by assigning Bitcoin a monetary function within a nation that prints dollars, it signals a shift from an unchangeable currency standard, effectively challenging the value of the dollar and potentially undermining the U.S.’s influence in the global economy. However, it’s important to note that these concerns raised by Carter are not widely shared; in fact, they appear to be quite uncommon in the mainstream narrative.

If state-level Bitcoin reserves are established without a strategic one, they could potentially assume a significant position in the management of governmental Bitcoin hoarding, ultimately transforming into prominent global cryptocurrency centers. With failed proposals, more will inevitably emerge.

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2024-12-26 21:02