For better or worse, every Texan owns a little bit of the popular cryptocurrency Bitcoin. Lawmakers from both parties voted in favor of creating the Texas Strategic Bitcoin Reserve during the regular legislative session, and Governor Greg Abbott happily signed the bill into law in June. The state comptroller’s office, which oversees the fund, recently signed a deal to buy the fund’s first asset, $5 million in Bitcoin.
This newspaper has opposed the establishment of a public cryptocurrency stockpile for a variety of reasons. Our concerns remain important.
Cryptocurrencies are highly volatile, and Bitcoin’s recent history highlights that. Bitcoin had reached around $126,000 per unit in early October. By the time the market closed on December 1st, its value had fallen to $86,321. ah.
The blockchain technology behind cryptocurrencies is theoretically very secure. Nevertheless, scammers easily exploit regulatory weaknesses, investor naivety, and the anonymity and decentralized nature of cryptocurrencies.
Last month, Europol announced that it had disbanded a multinational cryptocurrency fraud and money laundering organization. The New York Times reported in November that crypto exchanges such as Binance were collecting billions of dollars from drug cartels and terrorist organizations. (In 2023, former Binance CEO Qiao Changpeng pleaded guilty to operating without basic safeguards against money laundering. He was recently pardoned by President Donald Trump.)
Cryptocurrency mining also requires vast amounts of water and electricity, which can lead to conflicts in communities, including Texas.
With these caveats in mind, we understand that digital currencies are starting to mature and that retail and institutional investors are becoming more comfortable with them. Public money managers have a responsibility to ensure that these funds grow safely through prudent investment. For example, just keeping up with inflation over the past year would require an investment return of about 3%.
The National Conference of State Legislatures tallied 40 states that have considered bills related to digital currencies or assets this year. Texas is the first state to purchase digital currency for public reserves. Lawmakers allocated $10 million that can be used to purchase assets for the fund.
Texas may have been lucky with the timing of its acquisition. As business reporter Trevor Buck wrote in this paper on Tuesday, Bitcoin was trading at about $87,000 at the time the country appears to have bought the stash. Trying to time the market is usually foolish, but Texas would have been better off investing at that price than when Bitcoin peaked at $126,000.
$5 million is a small portion of the state’s $338 billion budget, but it’s still $5 million we can’t afford to lose. If a Bitcoin investment yields a profit, auditors should invest it in lower-risk assets rather than leaving it alone.
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