Texas is one step closer to becoming the first in the U.S. to establish a Strategic Bitcoin Reserve, a tool the bill's authors claim is to enhance financial resilience, hedge against economic instability, and diversify state assets by leveraging Bitcoin's potential for long-term value appreciation and investment returns.

The Senate, on March 6, 2025, passed Senate Bill 21 (SB 21), proposing the creation of a Texas Strategic Bitcoin Reserve, a financial asset fund that holds decentralized digital currency as a store of value, investment tool, or hedge against economic fluctuations. On March 11, 2025, the bill was received by the Texas House for further deliberation.

Key provisions of SB 21 include:

• Creation of the Texas Strategic Bitcoin Reserve, a fund managed by the Texas Comptroller of Public Accounts.
• Acquisition, management, and sale of Bitcoin, with requirements ensuring that any cryptocurrency held has an average market capitalization of at least $500 billion over the past year.
• An advisory committee composed of cryptocurrency investment experts to oversee asset management strategies.
• Mandatory biennial reports to the Legislature detailing Bitcoin holdings, financial status, and management actions taken.

Lt. Gov. Dan Patrick praised the bill's passage in the Senate, calling it a bold step toward securing Texas' financial future and promoting economic innovation. However, the bill has sparked debate, with critics warning of potential financial risks tied to Bitcoin's volatility. 

However, some critics argue that creating a state-managed Bitcoin reserve contradicts Bitcoin's foundational principle of decentralization, which is designed to operate independently of governments and financial institutions. While Texas would not control the Bitcoin network, centralizing Bitcoin holdings under government oversight raises concerns about regulatory intervention and misalignment with Bitcoin's original intent (Financial Times).

Potential Impact on Public Employee Pension Systems

The establishment of a Texas Strategic Bitcoin Reserve under SB 21 could have several potential impacts on public employee pension systems, both directly and indirectly:

Potential Positive Impacts

1. Inflation Hedge & Diversification
   • Proponents argue that Bitcoin, similar to gold, can act as a hedge against inflation. If Texas' Bitcoin reserve performs well, it could strengthen the state's financial position, potentially reducing fiscal pressures that might otherwise impact public pension contributions (Reuters).
   • Some public pension funds, such as the State of Michigan Retirement System, have invested in Bitcoin ETFs as a diversification strategy.
2. Attracting Investment & Economic Growth
   • Establishing a state Bitcoin reserve could attract blockchain-based businesses and tech sector investments to Texas, boosting the economy and generating more tax revenue that supports public pension funds.
3. Future Pension Fund Investment in Digital Assets
   • A state Bitcoin reserve could serve as a proof of concept, encouraging pension fund managers to study Bitcoin's long-term viability as an alternative asset. For example, the State of Wisconsin Investment Board recently allocated over $160 million to Bitcoin ETFs (WPR).

Potential Negative Impacts

1. High Volatility & Investment Risk
   • Bitcoin is highly volatile. The Government Accountability Office (GAO) warns that large Bitcoin holdings can increase portfolio volatility, which is risky for pension systems prioritizing stable returns (GAO).
2. Regulatory & Legal Uncertainty
   • Cryptocurrencies are subject to changing regulations, which could impact valuation, taxation, and investment security. The Public Retirement System of Kansas faced legal hurdles when considering Bitcoin ETF investments (P&I).
3. Potential for Mismanagement or Fraud
   • The Plan Sponsor Council of America (PSCA) warns of risks like cybersecurity threats and fraudulent activities when public funds engage with crypto assets (PSCA).
4. Public Perception & Political Risk
   • Bitcoin investments by public pension funds are controversial. Institutional skepticism remains high, as seen in concerns raised by the Financial Times regarding Bitcoin's legitimacy in government finance (FT).

Why It Matters

• If passed into law, Texas would be the first U.S. state to establish a Bitcoin reserve, setting a precedent for state-backed cryptocurrency investments.
• The debate over the fiscal risks and benefits of Bitcoin's inclusion in state finances could influence future pension investment strategies.
• The performance of the Texas Bitcoin Reserve could inform national policies on cryptocurrency's role in public investment funds.

What's Next?

• SB 21 awaits discussion in the Texas House, where lawmakers will assess its viability and impact.
• If the House approves, the bill will move to Gov. Greg Abbott's desk for final approval.

More Information

• Full bill text and status: Texas Legislature Online
• Supporters' perspective: Texas Policy Research
• Critics' concerns: Houston Chronicle
• Legislative progress updates: LegiScan

As the bill progresses through the legislative process, TEXPERS will continue to monitor and provide updates on its potential impact on public pensions and institutional investments in Texas.

FOLLOW TEXPERS ON FACEBOOK, X (formally known as Twitter), THREADS, AND LINKEDIN FOR THE LATEST NEWS ABOUT TEXAS' PUBLIC PENSION INDUSTRY.