Soon, three out of the 50 states in America are anticipated to establish local Bitcoin reserves. The legislative proposals differ from the American National Bitcoin Reserve initiative and cater to regional particularities.
The sentiment towards Bitcoin in America is increasingly positive. Reportedly, one in five Americans holds some Bitcoin. While the U.S. President is advocating for a national Bitcoin reserve, various states are focusing on creating local reserves. The proposals in Ohio and Texas are nearing passage, with Pennsylvania following suit, and other states are still contemplating their options.
How do the local proposals compare to the federal bill?
The primary difference lies in the ultimate objectives of the local proposals versus the federal initiative. The federal bill aims to address the national debt by procuring one million BTC to be held within the U.S. Treasury.
In contrast, the Texas proposal seeks to gather bitcoins through tax collections and cryptocurrency donations. Additionally, Texas enforces a minimum five-year hold on selling any state-owned bitcoins. Ohio and Pennsylvania also aim to amass BTC as a safeguard against the depreciating value of the USD, specifying that local treasuries must make the purchases. However, the bills provide vague details regarding the terms.
The Cynthia Lummis Bill
In July 2024, the Federal Reserve bill was introduced by Senator Cynthia Lummis of Wyoming. Her legislation is termed the Boosting Innovation, Technology, and Competitiveness through Optimized Investment Nationwide (BITCOIN) Act, explicitly intended as a measure to reduce the U.S. national debt.
Lummis also highlights the rising inflation rates in her introduction, referring to the creation of the reserve as a ‘Louisiana Purchase moment.’ The analogy of massive Bitcoin acquisitions mirroring historical land purchases has gained traction among Bitcoin enthusiasts.
According to the Lummis proposal, Bitcoin is positioned as an additional asset for the federal balance sheet. The bill proposes that the government establish a decentralized network of Bitcoin vaults managed by the U.S. Treasury. Furthermore, it calls for the acquisition of one million BTC, amounting to roughly 5% of the total supply, a proportion that corresponds to the U.S. possessing 5% of the world’s gold reserves. Private holders of Bitcoin should be granted self-custody rights.
The Local Bills
The local bills in Texas and Ohio lack explicit plans for acquiring a designated quantity of BTC within a specific timeframe and do not address the settlement of state debts.
The Texas bill was proposed by Texas State Representative Giovanni Capriglione on December 12. It allows residents to pay their taxes using cryptocurrency, along with options to donate cryptocurrency to the state, which will be converted to Bitcoin.
Taxes, donations, and other payments to state agencies will be the primary methods for Texas to build its Bitcoin reserves. The accumulated BTC will remain stored offline and untouched for a minimum of five years. Similar to Lummis, Capriglione noted inflation as a significant challenge when discussing the necessity of a Bitcoin reserve. Texas has become an attractive location for Bitcoin miners due to its low energy costs and various incentives.
During a CNBC interview aired on December 24, Centrifuge’s general counsel Eli Cohen expressed concerns about the potential difficulties of implementation. He pointed out that tax authorities may struggle to collect taxes in BTC and to identify taxpayers accurately. If tax officials request taxpayers to disclose their BTC wallets, individuals could hesitate to comply.
On December 17, Representative Derek Merrin introduced the Ohio Bitcoin Reserve Act, proposing that the Ohio treasury establish a Bitcoin fund to invest in Bitcoin as a hedge against the devaluation of the USD. Unlike the Lummis proposal, this bill does not specify any particular Bitcoin purchases or allocations. As of 2022, Ohio faced a $72.16 billion debt, and the BTC reserve could provide a means for debt management. Legislators are set to refine the bill further in 2025.
The Pennsylvania bill was introduced in November, suggesting the state could invest up to 10% of its State General Fund in Bitcoin to combat inflation—potentially allocating nearly one billion dollars for Bitcoin purchases.
Will these bills succeed?
The aforementioned bills have been introduced; however, there is no certainty they will be enacted. Statistically, only 20% of introduced state-level bills ultimately become law. In Texas, Ohio, and Pennsylvania, this figure is even lower. According to the New Healthcare Bill Acts, only 4.5% of bills presented during the 115th Congress became law, indicating modest chances of success overall, heavily influenced by factors including lobbyist efforts. Cohen believes Lummis is a robust advocate for Bitcoin with significant experience, giving her proposal a favorable outlook.
Nevertheless, there is a possibility the Lummis Act may not pass in Congress, facing criticism even within the crypto community. Notably, crypto writer Nic Carter cautions that while a Bitcoin stockpile as a store of seized bitcoins could have benefits, a strategic reserve acquired by the government may weaken the dollar’s price rather than strengthen it, as some advocates suggest.
The rationale is clear: introducing Bitcoin as a monetary asset in a dollar-issuing country raises questions about the dollar’s value, potentially jeopardizing the U.S.’s position in the global economy. However, it should be noted that Carter’s concerns do not seem to reflect mainstream opinion, which appears to lean toward embracing such proposals.
If the proposed strategic Bitcoin reserve fails but state-level reserves are established, these could emerge as key players in governmental Bitcoin acquisition and storage, potentially evolving into international cryptocurrency hubs. If all the current bills do not succeed, new initiatives are likely to follow.
