Michigan advances legislation to authorize up to 10% of state budget reserves for cryptocurrency investment.
In a growing trend, several states and countries are exploring the possibility of establishing cryptocurrency reserves as part of their financial strategies.
The federal bill passed in August, known as the National Digital Asset Infrastructure Act, directs the Treasury Department to assess the potential of a national Bitcoin reserve. The bill, however, does not specifically name Bitcoin, but refers to digital currencies that operate independently of central banks. To ensure security, the bill requires exclusive government control of private keys, encrypted storage, and restricted smartphone access. Regular audits would be required to maintain compliance with the bill's security requirements.
While several states, including Montana, North Dakota, South Dakota, Wyoming, and Pennsylvania, have rejected similar proposals, others are moving forward. New Hampshire, Arizona, and Texas have already passed laws allowing state treasuries to invest in cryptocurrurrencies. Michigan joins this list, with the Michigan House Bill 4087 progressing to the committee stage. The bill amends the Michigan Management and Budget Act to authorise a strategic crypto reserve.
The bill permits the state to loan out its crypto holdings to generate income, as long as it does not increase financial risk. The state treasurer can invest only through approved custody methods, including secure custody solutions, qualified custodians like banks or trust companies, and exchange-traded products from registered investment firms. The HB 4087 bill in Michigan specifically names only 'national banks' and 'state-chartered banks' as approved custodians for handling cryptocurrencies.
Additional measures include secure, geographically diverse data centers and multi-party transaction authorization. The bill proposes allowing up to 10% of Michigan's countercyclical and economic stabilization funds to be invested in cryptocurrency.
El Salvador has expanded its national reserves to include both Bitcoin and gold, setting a precedent for other nations. Pakistan plans to hold a permanent Bitcoin reserve as part of a broader digital infrastructure strategy. The Philippines introduced a bill for a long-term Bitcoin reserve with a 20-year holding requirement. Massachusetts and Ohio also have similar bills in committee.
Daily Bitcoin inflows in September hit the lowest level since May in the U.S., while retail investors and ETFs are beginning to drive new demand. This trend suggests a shift in the cryptocurrency market, with institutions and large-scale investors potentially being replaced by individual investors.
As the world of cryptocurrency continues to evolve, it is clear that states and countries are paying close attention. The potential benefits and risks associated with cryptocurrency reserves are under scrutiny, with many nations carefully considering their next steps. The future of cryptocurrency in the financial landscape remains uncertain, but one thing is clear: it is a topic of significant interest and potential for many governments worldwide.
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