Three of the 50 states in the United States are anticipated to establish local Bitcoin reserves in the near future. These bills differ significantly from the proposal of the American National Bitcoin Reserve, reflecting local nuances.

The enthusiasm for Bitcoin in America is palpable. Reports suggest that approximately one in five Americans owns some Bitcoin. While the President of the United States is advocating for a strategic Bitcoin reserve, individual states are focusing on their own local reserves. The proposals from Ohio and Texas to create such reserves are nearing approval, with Pennsylvania following suit, while other states are still assessing the situation.

How do the local proposals differ from the federal bill?

The primary difference lies in the end objectives of the local proposals compared to the federal-level initiative. The federal bill aims to address national debt by advocating for the purchase of one million BTC, which would be held in the U.S. Treasury.

On the other hand, the Texas bill focuses on accumulating bitcoins through tax collections and cryptocurrency donations. Additionally, Texas imposes a minimum five-year ban on selling state-owned bitcoins. Ohio and Pennsylvania seek to gather BTC as a safeguard against USD depreciation, with local treasuries mandated to buy the bitcoins. However, the bills lack explicit details regarding the procurement terms.

Cynthia Lummis’s Bill

The Federal Reserve bill was put forward in July 2024 by Wyoming Senator Cynthia Lummis. Her initiative is referred to as the BITCOIN Act, which stands for Boosting Innovation, Technology, and Competitiveness through Optimized Investment Nationwide. This bill is clearly articulated as a strategy to mitigate the U.S. national debt.

In addition to addressing national debt, Lummis highlights rising inflation rates and characterizes the establishment of this reserve as a “Louisiana Purchase” moment. A comparison between large-scale Bitcoin acquisitions and the historical purchase of American land has become a common theme among Bitcoin advocates.

According to Lummis’s framework, Bitcoin is to be recognized as an extra store of value within the federal balance sheet. The bill proposes that the government develop a decentralized network of Bitcoin vaults managed by the U.S. Treasury. Furthermore, it advocates the purchase of one million BTC, which represents about 5% of the overall supply, reflecting the U.S. government’s current holdings of 5% of all gold. Private Bitcoin owners should have self-custody rights as well.

The Local Bills

The local bills from Texas and Ohio do not indicate any specific intent to acquire a certain amount of BTC within a designated timeframe, nor do they aim to resolve state debts.

The Texas bill was proposed by Texas State Representative Giovanni Capriglione on December 12. The legislation would allow local residents to pay their taxes using cryptocurrency. Additionally, Texans will have the option to donate cryptocurrency to the state, which will subsequently be converted to Bitcoin.

Tax payments, donations, and other contributions to state agencies will be the primary methods for Texas to acquire bitcoins. The accumulated BTC is intended to be stored securely offline for a minimum of five years. Echoing Lummis’s viewpoint, Capriglione identified inflation as a significant challenge when discussing the necessity of the Bitcoin reserve. Texas has attracted Bitcoin miners due to its low electricity rates and various incentives.

In a recent CNBC interview aired on December 24, Eli Cohen, general counsel for Centrifuge, voiced concerns about the potential implementation challenges. He indicated that it may be difficult for tax authorities to collect taxes in BTC and identify taxpayers. If tax authorities require taxpayers to disclose their BTC wallets, compliance might be a concern.

On December 17, Representative Derek Merrin introduced the Ohio bill, known as the Ohio Bitcoin Reserve Act. This act proposes that the Ohio treasury establish a Bitcoin fund and invest in Bitcoin. Bitcoin is perceived as a hedge against the devaluation of the USD. Unlike Lummis’s proposal, this bill does not specify any designated Bitcoin purchases or allocations. With Ohio facing a $72.16 billion debt in 2022, it’s conceivable that the BTC reserve could aid in alleviating the debt. Legislators will continue to refine the bill in 2025.

The Pennsylvania bill was presented in November, proposing that the state invest up to 10% of the State General Fund in Bitcoin to combat inflation. This implies that nearly one billion dollars could be allocated towards bitcoins.

Will These Bills Be Approved?

The aforementioned bills have been proposed, but there is no assurance that they will pass. Statistics show that typically only 20% of introduced state-level bills become law. In states like Texas, Ohio, and Pennsylvania, this figure might be even lower. According to data concerning New Healthcare Bill Acts, merely 4.5% of the bills submitted to the 115th Congress became laws. Therefore, the statistical likelihood of passage is not particularly high, and many factors contribute, especially the influence of lobbyists. Cohen believes that Lummis is a strong advocate for Bitcoin with relevant experience, giving her bill a promising chance.

Nonetheless, the Lummis Act might face setbacks in Congress. It has encountered some criticism, even from within the cryptocurrency community. For example, crypto commentator Nic Carter cautions that while a Bitcoin stockpile (as a collection of seized bitcoins) could be advantageous, the strategic Bitcoin reserve (comprised of bitcoins acquired by the government) may not enhance the dollar’s value as proponents suggest; it could potentially do the opposite.

The underlying concern is straightforward: assigning a monetary role to Bitcoin within a country that issues dollars could indicate a departure from a non-convertible fiat standard, essentially questioning the dollar’s worth and jeopardizing the U.S. position in the global economy. However, it’s crucial to note that Carter’s apprehensions may not represent the prevailing view. In fact, the opposite seems to be true.

If the strategic Bitcoin reserve is not established while state-level reserves gain traction, those may emerge as leaders in governmental Bitcoin acquisition and storage, potentially evolving into international cryptocurrency hubs. And if all these bills fail, new proposals are likely to emerge.