Bitcoin: A New Strategic Reserve Asset for U.S. States?

In the context of the intersection between cryptocurrency and traditional finance, a new legislative proposal has sparked widespread discussion. The draft, named the "2025 Bitcoin Strategic Reserve Act," aims to incorporate Bitcoin into the financial systems of U.S. states as a strategic reserve tool. This is not only an unprecedented attempt but also a bold step taken in an environment of increasing global economic uncertainty, aimed at addressing inflation and enhancing financial resilience.

Bitcoin: A New Type of Reserve Asset for State Governments

With the changing political landscape, the idea of incorporating Bitcoin into the national strategic reserves is gradually moving from concept to reality. The newly proposed "2025 Bitcoin Strategic Reserve Act" aims to authorize state financial officials to include Bitcoin in their financial reserves to combat asset depreciation caused by inflation.

Looking back at American history, there have been several strategically significant major acquisitions, such as the purchase of Manhattan, the Louisiana Purchase, and the purchases of California and Alaska in the 19th century. These transactions may have initially seemed risky, but ultimately brought immense economic and strategic benefits to the United States.

The same logic can be applied to the potential procurement of Bitcoin today. Bitcoin, as a forward-looking strategic asset, possesses scarcity and long-term appreciation potential similar to those important resources in history. By incorporating Bitcoin into state financial reserves, the United States has the opportunity to extend its financial dominance into the digital economy era.

In the first part of the bill, lawmakers pointed out that inflation has severely eroded the purchasing power of state finances and retirement funds, affecting the economic well-being of residents. Although state governments cannot control federal monetary supply and macroeconomic policies, they have a responsibility to protect the financial health of the state. Therefore, Bitcoin has been placed on the agenda as an anti-inflation asset. Data shows that Bitcoin's market value has rapidly increased over the past 16 years, now exceeding $1 trillion, proving its potential in combating inflation.

Legislative Intent: Enhance Fiscal Resilience and Innovation

The draft proposes to allow Bitcoin and other digital assets to be included in the state treasury's investment portfolio as a means to address inflation and economic uncertainty. The core objectives of the legislation include:

• Protect the purchasing power of state finances and prevent assets from depreciating due to inflation.
• Respond quickly to market changes and enhance returns through flexible investment policies.
• Ensure that the investment strategy aligns with the goals of enhancing state economic security and financial resilience.

The bill emphasizes flexibility. In the context of an increasingly complex global economy, traditional investment models appear too rigid, while the introduction of digital assets such as Bitcoin provides more diverse options for investment portfolios, enabling state governments to better cope with market risks.

Security Custody Measures for Digital Assets

The draft proposes strict security requirements for the holding and management of digital assets. The custody methods for Bitcoin include three types: direct holding by the state treasury, holding by qualified custodians, or holding through exchange-traded products (ETPs). At the same time, the draft proposes a "secure custody solution," requiring that private keys be controlled solely by the government and stored in an encrypted environment, ensuring asset security through measures such as geographically dispersed data centers and multi-party governance structures.

Specific measures include:

• Exclusive control of private keys: Encrypted private keys must be held by government entities and can only be accessed in an end-to-end encrypted environment.
• Geographically distributed data centers: Hardware devices for private keys must be stored in at least two geographically dispersed secure data centers.
• Multi-party governance structure: The authorization for each transaction must go through a multi-party governance structure to ensure strict approval and record-keeping.
• Disaster recovery mechanism: Custodial service providers must have a comprehensive disaster recovery mechanism.
• Regular code audits: Custodial solutions must undergo regular code audits and penetration testing by an auditing firm.

Bitcoin Taxation: A New Source of Funding for Public Services

The fifth part of the bill concerns the methods of payment for taxes and fees. Taxes and fees paid in Bitcoin will be transferred to the state's general fund, while the state fund will compensate the corresponding digital asset accounts in US dollars. This arrangement not only ensures the flexible use of funds but also signifies that the acceptance of Bitcoin at the state level has significantly increased.

The process of paying taxes with Bitcoin is as follows:

• Taxpayers can use Bitcoin to pay taxes, and these Bitcoins will first enter the state's general fund account.
• State general funds will be compensated to the designated digital asset account in an equivalent amount in US dollars to ensure financial balance.
• Through blockchain technology, the income and expenditure process of Bitcoin is made public and transparent, reducing the risk of corruption and fund misuse.

In addition, the draft also allows state retirement funds to invest in registered digital asset exchange products, further enriching investment channels.

Experimental Innovation in Finance

The "2025 Bitcoin Strategic Reserve Act" is an unprecedented attempt and a microcosm of the modernization of the financial system. With a certain state passing the "Bitcoin Rights" bill, the introduction of this strategic reserve act appears logical and has far-reaching significance.

To address the significant volatility risk of Bitcoin, the draft proposes several risk control measures:

• Investment cap: The state's financial investment in Bitcoin shall not exceed 10% of the total amount of the relevant fund.
• Asset Lending: The state treasury can obtain additional income by borrowing Bitcoin without increasing financial risk.
• Diversified investment strategy: Encourage state governments to continue investing in other traditional financial assets while introducing Bitcoin.

Whether this proposal can be widely accepted and implemented still depends on discussions and evaluations by state governments and the public. However, its ideas are undoubtedly worth learning from.

The "2025 Bitcoin Strategic Reserve Act" seeks to enhance the resilience and flexibility of public funds by incorporating Bitcoin, an emerging digital asset, into the state financial system. Behind the legislation lies an urgent need to promote financial modernization as well as a cautious approach to emerging risks. Whether this experiment can succeed and provide a new paradigm for future government investment and financial innovation remains to be seen.