Key Takeaways
- U.S. states and statewide pension plans are increasingly considering cryptocurrencies (crypto), particularly bitcoin, as a reserve investment.
- So far, 17 states either allow or have introduced legislation to allow crypto as a reserve asset and 16 are proceeding toward including crypto investments in their statewide pension trusts.
- The recent creation of crypto exchange-traded funds (ETFs) and the rapidly evolving regulatory landscape may have increased interest in crypto as an investment by helping address some associated risks.
The Regulatory Landscape Is Expanding For Cryptocurrencies
Although crypto is still a very small allocation in U.S. state reserve and pension holdings, many states are in various stages of implementing policy changes to allow the use of bitcoin or other cryptocurrencies in their general fund and/or pension trust assets. Increasing investor interest, particularly in bitcoin, and the refinement of crypto regulation in the U.S. and around the world, including stablecoins, help the market increasingly treat crypto as a legitimate investment. See "Stablecoin Regulation Gains Global Momentum," published Feb. 10, 2025, on RatingsDirect. In addition, the creation of crypto ETFs alters the risk profile of crypto to exchange the novel operational and cyber risks of direct ownership for counterparty risks comparable with those of more typical high-risk investments. Although direct ownership of crypto requires specialized infrastructure and staffing, ETFs pass much of the risk and the complicated setup to a large financial entity for a fee.
While S&P Global Ratings does not advise on investment policies, it may review asset allocations for large portfolios and their associated credit risks. In general, we view diverse asset allocations as generally a mitigating factor of market risk and as such understand that fund managers will investigate new and evolving asset classes. Crypto is one such asset class.
We reviewed the crypto environment in the 50 U.S. states for both state reserves and statewide pension assets and categorized the results into four groups.
Prohibited or recently rejected. Eight states do not allow crypto to be held in reserves and four states similarly prohibit the use of crypto in their statewide pension trusts.
Minimal movement. Another 25 states have had limited discussions on crypto to be held in reserves, if at all, and 30 states are similarly lacking consideration for crypto in their statewide pension trusts.
Proceeding. Sixteen states have begun discussions to allow crypto in reserves and nine states have had discussions about statewide pension plans having the ability to include crypto in their trusts.
Allowed. One state already allows crypto in its reserves, but doesn't have any; seven statewide pension plans allow crypto in their trusts, with four currently holding crypto assets.
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How Crypto Investments Affect Creditworthiness
In the relatively short history of crypto as an investable asset, the swings in value have been significant. Should crypto holdings or investments become a large part of any asset portfolio, the volatility of crypto in state assets could stress state budgets because funding requirements might not match the market, leading the state to adjust operations or issue debt to address its liquidity needs. Crypto volatility in pension assets could lead to budgetary stress for not only the state but also local governments or enterprises that participate in the plan since market value asset losses directly lead to contribution increases for plans that contribute on an actuarial basis. Plans that receive contributions on a fixed, or non-actuarial, basis could see funding deteriorate, which would lead to future contribution increases. In our view, exploring how and if an asset class would fit into an asset allocation is a reasonable exercise and should be done recognizing all potential benefits and risks.
There are multiple opportunities and risks of crypto investments to states and pension plans.
Opportunities
Crypto assets can provide investors with new risk and return characteristics to introduce into a diversified investment portfolio. Investors may value their potential returns in certain scenarios:
- Bitcoin holdings may provide a hedge against long-term debasement of fiat currency through inflation, due to bitcoin's finite supply. Its value may also be driven by geopolitical factors if its security and decentralized nature lead to its increasing adoption as a reserve asset.
- Other crypto assets such as ether or Solana are similar to technology venture investments, as they provide exposure to upside if these technology platforms continue to see increasing adoption.
Risks
- Market value risk: Historically, their prices have been volatile. They would introduce a risk factor if included in funds that are intended to cover an issuer's short-term liquidity needs (which typically do not include asset types with significant market value risk).
- Operational and cyber: Although direct ownership of crypto requires specialized infrastructure and staffing, much of the risk is adjusted to levels comparable with those of traditional investments when held, in lieu of direct crypto ownership, in shares of a crypto ETF from a third party investment manager with robust operational practices.
- Goal misalignment: Grouping all non-stablecoin crypto together under the same risk profile may overlook unique risk characteristics among different types of investments, such as bitcoin ownership, technology investments, or tokenized securities.
- Regulatory uncertainty: We have seen a large swing in the regulation picture at the federal level from the new U.S administration and similar changes could happen again, either due to leadership change or even a downturn in crypto prices if that reduces investor interest.
What We Expect
Crypto investments may increasingly be viewed as an eligible investment in the U.S. for at least legal consideration, even if not held in substantial quantities. This is particularly true for bitcoin ETFs, as many of the state proposals require investment in an ETF as opposed to direct ownership and require a minimum market cap that limits current options to bitcoin only. The legitimacy of crypto, or at least bitcoin, may be supported further if the U.S. decides to increase the Strategic Bitcoin Reserve and other countries follow suit. Because crypto is a high-risk investment and given that many proposals have defined limits on crypto investments, we do not expect crypto to make up a meaningful portion of state reserves or pension trust assets in a way that might affect credit risk for the state or governmental entities within the state.
Appendix
| State reserve and pensions--recent cryptocurrency developments | |
|---|---|
| State | Notes |
| Alaska | The Alaska Permanent Fund Corp. has considered investing in bitcoin but does not currently recommend cryptocurrency exposure. |
| Alabama | State auditor advocated in December 2024 that Alabama establish a strategic bitcoin reserve, suggesting a dollar-cost-averaging approach over two years to position Alabama as a crypto-friendly state. |
| Arizona | Strategic Bitcoin Reserve Act (SB1025) passed, allowing government entities, including pension plans, to invest up to 10% of capital in bitcoin and other digital assets. |
| California | The California Public Employees’ Retirement System and the California State Teachers Retirement System each own more than $75 million as shares of the Strategy stock, commonly viewed as a proxy for bitcoin ownership. |
| Colorado | The Colorado Public Employees’ Retirement Assn. does not allow investments in crypto. |
| Florida | Proposed bills SB 550 and HB 487 would authorize the state’s CFO to invest up to 10% of public funds, including the Florida Retirement System, in bitcoin. The Florida State Board of Administration Retirement System currently holds $46 million in Strategy shares. |
| Georgia | SB228 introduced in February 2025 would allow treasurer to invest in bitcoin, unlimited. |
| Iowa | House file 246 introduced to the Iowa Legislature in February 2025 would allow up to 5% of specified public funds to be invested in either stablecoins or cryptocurrencies that have a market cap of at least $750 billion. |
| Illinois | HB1844, the Strategic Bitcoin Reserve Act, introduced to general assembly in January 2025 to create a bitcoin reserve in state treasury, allows conversion to other cryptocurrencies, and requires holding for at least five years in cold storage with regular audits and biennial reports. |
| Indiana | Crypto is currently available as an investment option for the Indiana Public Retirement System. |
| Kansas | SB34, introduced in January 2025, would allow the Kansas Public Employees’ Retirement System to invest up to 10% of assets in a bitcoin ETF. |
| Kentucky | HB376, introduced in February 2025, would allow investment up to 10% of excess cash in cryptocurrencies that have a market cap of at least $750 billion. Holdings can be either direct ownership, ETF, or regulated stablecoins. HB376 explicitly allows the state's retirement funds to invest in crypto ETFs. |
| Massachusetts | Petitioned Bill S.1967 would establish a bitcoin strategic reserve and allow investment in digital assets of up to 10% of state's fund. Holdings can be either direct ownership or ETF. Petitioned Bills S.2008 and HD.3762 would allow investment in digital assets of up to 10% of holdings for any state retirement fund. Holdings can be either direct ownership or ETF. |
| Maryland | HB1389, introduced in February 2025, would establish a Maryland bitcoin reserve fund with primary funding expected from gambling violations. |
| Michigan | HB4087, introduced in February 2025, would authorize up to 10% of the state general and economic stabilization funds in cryptocurrency investments. The State of Michigan Retirement System currently has approximately $7 million in a bitcoin ETF and $11 million in an Ethereum ETF. |
| Missouri | SB614, introduced in January 2025, would allow up to 10% of public funds in digital assets through direct ownership or ETF. |
| Montana | HB429 failed a House second reading with a vote of 41-59 in February 2025; would have enabled investment in digital assets for both the state and pension systems. |
| North Carolina | HB92 cleared the House in March 2025 and would allow state investments of up to 10% of fund balance, including major pension plans specified, in crypto ETFs that have a market cap at least $750 billion. |
| North Dakota | HB1184 failed a second reading in January 2025; would have authorized state investment in crypto. |
| New Hampshire | HB302 would allow the state treasurer to invest up to 5% of public funds in digital assets that have a market cap of at least $500 billion. HB302 allows for crypto investment any funds authorized by the legislature. |
| New Mexico | SB275, or the Strategic Bitcoin Reserve Act, was tabled by committee in February 2025, would invest up to 5% of public funds in bitcoin. SB275 includes any state fund considered appropriate by the state investment council. |
| New York | Current law allows up to 35% of total state retirement system assets to be invested at the prudent discretion of the trustee(s); however, currently no investment is in digital assets. |
| Ohio | Senate Bill 57 (Ohio Bitcoin Reserve Act) introduced in February 2025 would authorize state investment in bitcoin with no limitation, allow direct ownership, and require holding for at least five years. House Bill 18 (Ohio Strategic Cryptocurrency Reserve Act), introduced in January 2025, would authorize state investment of up to 10% of certain interim funds in digital assets in a digital currency ETF that has a market cap of at least $750 billion. House Bill 18 specifies that state retirement systems are currently able, under prudent discretion, to invest in any exchange-traded products. |
| Oklahoma | HB 1203, the Strategic Bitcoin Reserve Act, passed out of Oklahoma’s House on Mar. 25, authorizes up to 10% investment from specified state funds, including state pension funds, in digital assets with a market cap of at least $500 billion, as well as stablecoins. Ownership may be direct or ETF. |
| Pennsylvania | HB2664 failed in November 2024 but would have permitted the state to invest up to 10% of specified funds, including state pension funds, in bitcoin ETFs. |
| Rhode Island | H6007, Rhode Island Digital Asset Retention Act, introduced in February 2025, would allow up to 10% state investment, including the Rhode Island Employees' Retirement System and Public School Employees' Retirement System, in digital asset ETFs. |
| South Dakota | HB1202 failed in House in February 2025, would have permitted state investment in bitcoin. |
| Texas | SB21, the Texas Strategic Bitcoin Reserve and Investment Act, approved by the Senate in March 2025 would establish a strategic bitcoin reserve outside the state treasury for any digital asset with a market cap of at least $500 billion. HB4258, proposed in March 2025, would allocate up to $250 million of the economic stabilization fund balance to bitcoin and other cryptocurrencies. This bill allows municipalities and counties to allocate up to $10 million in bitcoin or other cryptocurrencies. Neither bill applies to public retirement systems. |
| Utah | HB230, the Blockchain and Digital Innovation Amendments, creates a state crypto framework and passed both houses in March 2025 but explicitly removed the part about creating a 5% state bitcoin reserve. |
| Wisconsin | The Wisconsin Retirement System owned about $321 million of a bitcoin ETF as of December 2024. |
| West Virginia | SB465 introduced January 2025 would authorize investment, including the state retirement fund, of up to 10% in any cryptocurrency with a market cap of more than $750 billion, as well as stablecoins. Ownership may be direct or ETFs. |
| Wyoming | HB0201 failed in March 2025; would have allowed investment of up to 3% of the state's general, permanent land, and mineral trust funds in bitcoin. |
This report does not constitute a rating action.
| Primary Credit Analysts: | Todd D Kanaster, ASA, FCA, MAAA, Englewood + 1 (303) 721 4490; Todd.Kanaster@spglobal.com |
| Geoffrey E Buswick, Boston + 1 (617) 530 8311; geoffrey.buswick@spglobal.com | |
| Secondary Contact: | Andrew O'Neill, CFA, London + 44 20 7176 3578; andrew.oneill@spglobal.com |
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