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With the idea of strategic Bitcoin reserves gaining traction following Donald Trump’s election victory, Pennsylvania is in the running to become the first US state to open such a reserve.
Republican lawmakers have introduced a new bill that calls on Pennsylvania state authorities to begin investing public funds into Bitcoin.
The Bitcoin Strategic Reserve Act, introduced last week, would grant the state treasurer the authority to purchase Bitcoin or other digital assets on behalf of the state.
Representative Mike Cabell, the lead sponsor of the bill, believes that a Bitcoin purchase plan for the state would act as a hedge against inflation.
“Inflation has eroded the purchasing power of the assets held in state funds managed by the state treasurer as well as state retirement funds,” the bill reads.
“This erosion diminishes the value of the Commonwealth's reserves, affecting the financial stability and economic security of this Commonwealth.
“Although the Commonwealth does not have direct control over the national money supply or the policies that influence inflation, the Commonwealth has a duty to safeguard against the impacts of inflation and other economic uncertainties.”
The bill includes several limitations, including a cap on the total amount that the state treasurer could invest in Bitcoin (or other digital assets) in each calendar year.
It calls for Pennsylvania’s Bitcoin purchases to be limited to no more than 10 percent of the total funds available in any state investment fund, including the Budget Stabilization Reserve Fund.
The Bitcoin acquired by the state treasurer would also need to be held by a “qualified custodian” using a secure custody solution, or held within an exchange-traded fund issued by an investment firm registered in-state.
Finally, the bill would permit the Pennsylvania treasurer to loan the state’s Bitcoin to third parties to generate additional returns, providing this can be done “without increasing the financial risk to the Commonwealth”.
If adopted, the Bitcoin Strategic Reserve Act would come into effect in 60 days.
Chances of passing
If Cabell’s previous digital assets bill is any guide, Pennsylvania’s Bitcoin Strategic Reserve Act is likely to attract bipartisan support.
Whether that support will be enough to pass the bill, and to avoid a gubernatorial veto, is another question, however.
Last month, Cabell’s Digital Assets Authorization Act was adopted in the House of Representatives in a 176–26 bipartisan vote.
That bill would prevent state authorities from "prohibiting”, “restricting” or “impairing” the ability of individuals or businesses to accept digital assets as a method of payment.
The state would also be prevented from levying additional taxes on digital asset payments for goods or services, beyond those that currently apply to traditional payments.
“More than 1.5m Pennsylvania residents own some form of digital asset,” said Cabell. “My bill would create clear rules for using blockchain and digital assets, ensuring security and encouraging innovation.
“This approach will make it easier for our citizens and businesses to use and benefit from this growing form of technology.”
Finally, the bill would protect the right of individuals and businesses to self-custody their digital assets, using either self-hosted or hardware wallets.
Dubbed the "Bitcoin Rights Act", the bill is currently under consideration in the Pennsylvania Senate. If passed, it would take effect in 60 days.
State and federal strategic Bitcoin reserves
Cabell’s Bitcoin Strategic Reserve Act mirrors similar proposals that have been made to create a Bitcoin reserve at the federal level.
President-elect Donald Trump took up this cause during his election campaign, while Senator Cynthia Lummis (R-WY) is leading the legislative effort in Congress.
As covered by Vixio, Lummis has introduced a bill that would authorise the US Treasury to purchase 1m units of Bitcoin using public funds.
“Because of the way that Bitcoin has been appreciating since its inception, this could be an asset that could help shore up the US dollar as the world reserve currency,” Lummis told CNBC this week.
“It would serve as a reserve that could be used to reduce the national debt significantly."
The Bitcoin Purchase Program, as outlined in the bill, would be carried out over five years, and would be funded by transfers of gold certificates from the Federal Reserve.
The US government would then be authorised to hold the Bitcoin in the reserve for a period of 20 years.
“We wouldn’t have to spend any new dollars. We have reserves at our 12 Federal Reserve banks, including gold certificates that can be converted to their current fair market value, and then sell them into Bitcoin,” said Lummis.
“That way, we wouldn’t have to use any new dollars in order to establish this reserve.”
The bill would also authorise the US government to hold on to the Bitcoin it acquires through seizure of forfeiture, rather than selling it for fiat currency.
The US government already holds more than 200,000 Bitcoin asset forfeiture funds, which would be the initial source for the strategic reserve, Lummis added.
