LONDON, ENGLAND – OCTOBER 23: A visual representation of the digital Cryptocurrency, Bitcoin on … [+]
Corporate buyers and headlines aside, state-based bitcoin acquisitions could play a critical role in the bitcoin market going forward.
As bitcoin continues to flirt with the $100,000 level, the discussion and interest in bitcoin and other cryptoassets continues to increase. Building on the momentum built during the campaign of now President-Elect Trump, the buzz around the possibility of positive changes at the federal level for the bitcoin industry has continued to build both on social media and in policy circles. Specifically politicians such as Senator Lummis have continued to advocate for federal legislation that would – in addition to other actions – enable the creation of a strategic bitcoin reserve. In addition to policymakers continuing to discuss these issues, the financial market media has also been covering the idea, with media segments focusing on the potential for a U.S. sovereign wealth fund to purchase bitcoin as its primary asset.
On top of these developments the TradFi investment into crypto continues to accelerate. Specifical examples include the approval of spot ETF options issued by Blackrock, following the accelerant provided to adoption and prices following the approval of the spot ETFs in January 2024. With these ETFs attracting nearly $34 billion in assets since launch, surpassing gold, these are not an asset class that can be ignored. Additionally, Microstrategy announced a $1.75 billion bond issuance to purchase more bitcoin (maturing in 2029), while using proceeds from a share sale to purchase $4 billion of bitcoin.
All of these activities and fund flows are reason for optimism, but another trend could both send prices higher as well as increasing the legitimacy of the asset for more mainstream investment. Let’s take a look at how the possibility of a state-based bitcoin reserve fund might play an outsized role in the bitcoin market as 2025 approaches.
Price Appreciation Solidifies Non-Currency status
Perhaps the most obvious effect of the positive momentum and conversations (at both the state and federal level) will be the positive effect on the price of bitcoin, and potentially other cryptoassets more broadly. In 2024 alone the price of bitcoin has jumped from approximately $43,000 from the beginning of January to the almost $100,000 level in November, reflecting both the increased buying powered by institutional acquisition as well as the positive sentiment in the space at large. If either the U.S. federal government or state governments begin purchasing bitcoin at any significant level this will only serve to push the price higher. This development is celebratory for investors and long-term holders of bitcoin, to be sure, but also solidifies another reality of the crypto space.
Bitcoin increasingly does not, despite the original intent of the cryptocurrency, appear to be forming into the currency of the future in the near to medium term. Especially since the conversation around bitcoin continues to focus on its value as an investment, hedge against inflation, or as a strategic reserve tool, the likelihood of its adoption for currency purposes continues to decrease. Price increases might be celebrated, but increasingly shifts bitcoin to an asset class versus a currency option.
Pressure At The Federal Level
The pressure that is being brought to bear at the federal level to construct a pro-crypto regulatory regime, including the establishment of a strategic bitcoin reserve, cannot be underestimated as the Trump regime prepares to return to Washington. The crypto sector spent approximately $200 million on the most recent election cycle, and with over 200 members of Congress having received funding and support from these lobbyists the likelihood of a pro-crypto Congress is relatively high. In addition to this President-Elect Trump, while on the campaign trail, made substantial overtures and promises to the industry to support and foster innovation and growth in the United States.
While individuals such as Senator Lummis continuing to pursue policy objectives such as The BITCOIN Act, which would facilitate the creation of a reserve, and discussion of a strategic bitcoin reserve continuing to grow; advisors and policy wonks would be well served to watch these conversations as they develop.
Positive momentum aside, politicizing crypto – which establishing a strategic reserve at the federal level would – also opens the door to crypto being yet another political football for policymakers to debate over moving forward. This could include tweaks and changes to the tax code that become subject to the whims of the executive branch, versus IRS section updates.
State Leadership on Crypto Issues
While the likelihood of federal action might seem virtually guaranteed to crypto proponents the reality is that the crypto sector and investing community still remains small versus TradFi markets. This is both an acknowledgement of the still emerging and developing status of crypto markets and assets, as well as providing an insight into opportunities at the state level for crypto policy leadership. For example, Wyoming is in the midst of minting and issuing the first state-backed stable token in the form WYST. When viewed in conjunction with efforts underway in states like Pennsylvania to create strategic bitcoin reserves on the state level, it looks increasingly likely that crypto policy leadership might emerge from the states alongside – or perhaps before – policy at the federal level.
