Trump’s inauguration will usher in a crypto-friendly administration and with it the new government policies

HARRISBURG, Pa. (AP) – The bitcoin-friendly administration of President Donald Trump and a growing lobbying effort in statehouses could push states to become more open to crypto and prompt public pension funds and state treasuries to buy into it.

Proponents of the unique volatile commodity argue that it is a valuable hedge against inflation, similar to gold.

Many bitcoin enthusiasts and investors are quick to say that government-backed currencies are prone to devaluing, and that increased public buy-ins will stabilize future price fluctuations, give them more legitimacy and fuel already rising prices.

But the risks are significant. Critics say crypto investing is highly speculative, with so much unknown about projecting future returns. They warn that investors should be prepared to lose money.

Only a few public pension funds have invested in cryptocurrency. A US Government Accountability Office study of 401(k) plan investments in crypto, issued late last year, warned that it has “uniquely high volatility.” It found no standard approach to project the future returns of crypto.

2024 was a landmark year for crypto, with bitcoin exceeds $100,000. US Securities and Exchange Commission approved the first exchange-traded funds to hold bitcoin. Now crypto-enthusiasts are betting on Trump’s promise to turn the United States into “bitcoin superpower” of the world.

More crypto legislation may be on the way

Legislators in several states can expect to see bills this year to make them crypto-friendly. Analysts say crypto is becoming a powerful lobby. Bitcoin miners are building new installations and venture capitalists are accounting for a growing technology sector that caters to cryptocurrencies.

Meanwhile, a new crypto-friendly federal government under Trump and Congress could consider legislation from Sen. Cynthia Lummis, R-Wyoming, to create a federal bitcoin reserve that states can piggyback on.

A bill introduced in November in the Pennsylvania House of Representatives sought to authorize the state treasurer and public pension funds to invest in bitcoin. It went nowhere before the legislative session ended, but it caused a stir.

“I had a friend who’s a representative down the road text me, ‘Oh my god, I get so many emails and phone calls to my office,’ more than he ever did about any other bill,” said the measure’s sponsor, Republican Mike Cabell.

A bitcoin enthusiast who lost his re-election bid, Cabell expects a colleague to reintroduce his bill. Leaders of bitcoin advocacy group Satoshi Action say they expect legislation based on their model law to be introduced in at least 10 other states this year.

But what about the public pension funds?

Keith Brainard, director of research for the National Association of State Retirement Administrators, said he doesn’t expect many investment professionals at public pension funds, which oversee nearly $6 trillion in assets, to invest in crypto.

Pension fund professionals take risks they deem appropriate, but bitcoin investing has a short track record, may only fit into a niche asset class, and may not fit the risk-to-reward profile they seek.

“Bitcoin can be a bit of a mess,” Brainard said. “But it’s hard to imagine a scenario where pension funds are willing to commit right now.”

Louisiana Treasurer John Fleming helped make the state the first to introduce a system that allows people to pay a government agency in cryptocurrencies.

Fleming said he is not trying to promote cryptocurrency, but rather sees it as a recognition that the government needs to innovate and be flexible in helping people do business with the state. He said he would never invest his money, or the government’s, in crypto.

“My concern is that at some point it stops growing and then people want to make money,” Fleming said. “And when they do, it can tank the value of a bitcoin.”

In Pennsylvania, Treasury officials said they have the authority to decide for themselves whether cryptocurrencies meet the agency’s investment standards under state law and do not need new legislation.

Still, a highly volatile asset is ill-suited to the agency’s need for predictability, given that it writes millions of checks a year. The overwhelming majority of the roughly $60 billion it invests at any given time is in short-term, conservative investments designed for an investment period of months, officials there said.

Pension boards that invest on a 30-year time horizon may already have small investments in companies involved in the mining, trading and storage of cryptocurrencies. But they have been slow to embrace bitcoin.

That could change, said Mark Palmer, managing director and senior analyst at The Benchmark Company in New York.

Pension boards got investment tools they liked last year when the US Securities and Exchange Commission approved the first exchange-traded funds to hold bitcoin. In October, it approved listing options on those funds, Palmer said.

Many “are probably getting up to speed on what it means to invest in bitcoin and kick the wheels, so to speak, and that’s a process that typically takes a while at the institutional level,” Palmer said.

Several major asset managers such as BlackRock, Invesco and Fidelity have bitcoin ETFs.

Some states are already investing in crypto

In May, the State of Wisconsin Investment Board became the first state to invest when it bought $160 million worth of shares in two ETFs, or about 0.1% of its assets. It later scaled that investment down to $104 million in one ETF per 30 September. A spokesman declined to discuss it.

Michigan’s state investment board reported about $18 million in bitcoin ETF purchases, while a candidate for New Jersey governor, Steven Fulop, said if elected he would push the state’s pension fund to invest in crypto.

Fulop, the Democratic mayor of Jersey City, just across the Hudson River from Manhattan, has been preparing for months to buy bitcoin ETF shares for up to 2% of the city’s $250 million employee pension fund.

“We were ahead of the curve,” Fulop said. “And I think that’s what you’re ultimately going to see is that this is widely accepted, in terms of exposure in all pension funds, some form of exposure.”

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Follow Marc Levy on X at: https://x.com/timelywriter.