Texas Passes Bitcoin Reserve Bill: The First State-Level Public Funded Independent Reserve

Texas recently passed the SB 21 bill, becoming the third state in the nation to establish a state-level strategic Bitcoin reserve. Although the other two states took legislative action first, Texas is the first state to create an independent Bitcoin reserve fund supported by public funds.

The state government has allocated $10 million for the purchase of Bitcoin during this fiscal biennium. This fund will be managed by the state treasurer and established outside the state financial system. At the same time, Bill HB 4488 has also been passed to ensure that this reserve fund is not affected by the state financial system's periodic "fund sweep" mechanism, meaning it will not be diverted for general fiscal purposes.

Core Content of Bill SB21

The bill considers that Bitcoin and other cryptocurrencies have strategic potential to enhance the fiscal resilience of the state and can serve as tools to combat inflation and economic fluctuations. The bill stipulates:

• Flexible asset management: The chief accountant can invest, exchange, sell, manage, or hold based on the standards of rational and prudent investors.
• Reserve funds can be jointly invested with the state treasury fund pool.
• Investment asset scope: Cryptocurrencies with an average market capitalization of no less than $500 billion in the past 24 months.
• Execution level: The main accountant can sign contracts with qualified custodians who possess cold wallet security custody technology, as well as qualified liquidity providers who assist in asset purchase and management.
• Allow the use of derivatives: If it is beneficial for reserves, the comptroller may use derivatives.
• Establish an Advisory Committee: Composed of the Chief Accountant and designated experts, responsible for asset valuation recommendations and investment policy design, etc.

From Precious Metals to Bitcoin: Exploring Financial Sovereignty

The congressman involved in the drafting of the bill stated that this initiative continues Texas's exploration of financial sovereignty. He believes that Bitcoin reserves are functionally complementary to the previously established precious metal vaults, as both can provide scarce, valuable resources that can be transferred between individuals and are effective means to combat inflation.

State-level "Policy Lab"

Various states in the United States are intensifying the review of various Bitcoin reserve bills. These state-level initiatives can be seen as "policy laboratories" that can test new policies more quickly and in closer alignment with public opinion. Compared to the federal government, states face more constraints in terms of finances, so the core significance of strategic Bitcoin reserves lies in preserving public funds, combating inflation, and ensuring that state governments can fulfill their obligations in the future.

Implementation Details and Prospects

The $10 million expenditure in Texas accounts for a very small proportion of the state annual budget and can be seen as a "trial run". Currently, the focus is on ensuring that the Comptroller's office and the Texas Treasury Trust Agency have sufficient capacity to collaborate with qualified custodians to ensure the secure custody of reserves, compliance audits, and other processes.

Relevant departments are holding meetings with interested companies and will initiate an open and transparent bidding process. The bill allows for obtaining Bitcoin exposure through derivatives, but policymakers hope to directly custody physical Bitcoin and hold the private keys, rather than simply purchasing ETFs.

The definition of "qualified custodians" is relatively flexible, possibly to broaden the scope of competition. Different institutions offer custodian solutions with their own characteristics, and the Office of the Chief Accountant and related agencies will need a certain learning process to evaluate various solutions.