State governments in the United States begin to incorporate Bitcoin into reserves

Recently, several state governments in the United States have begun to include Bitcoin as part of their reserve assets. Currently, two states have completed the relevant legislation, and five more states are advancing their legislative processes. The strategies and risk control measures adopted by each state vary significantly, reflecting local governments' differing attitudes towards highly volatile decentralized assets.

Practices in New Hampshire and Arizona

In just two days, New Hampshire and Arizona completed legislation and were signed by the governors, marking the beginning of a new era for state governments holding cryptocurrencies. The approaches and risk control mechanisms adopted by the two states differ significantly, reflecting different political and economic objectives.

New Hampshire: Active allocation, single asset, set limit

New Hampshire's approach is more like "Treasury-level asset diversification". The new bill authorizes the state treasurer to exchange up to 5% of the general fund and emergency fund directly into digital assets with a market value exceeding $500 billion for a continuous year, and in reality, only Bitcoin meets this criterion.

Lawmakers emphasize that the 5% cap serves as a safety valve: as the amount of fiscal funds increases or decreases, the amount of cryptocurrency held will be adjusted accordingly to avoid a one-time heavy investment. However, the bill's provisions on whether to proportionally sell off when "the fund size shrinks" are not clear enough, leaving some gray areas in accounting treatment.

In terms of custody, the new legislation provides three options:

1. The state government manages multi-signature cold wallets independently.
2. Entrust licensed special purpose deposit institutions or other regulated banks to hold custody.
3. Hold Bitcoin ETFs approved by the SEC or NFA

If you choose to manage a cold wallet yourself, you must meet seven technical standards, including geographical dispersion, hardware isolation, and annual penetration testing, to minimize the risk of private key leakage as much as possible. However, if you choose an ETF, the state government can only obtain trust certificates, bringing transparency back to the level of traditional financial ledgers, contradicting the advantage of "visibility and traceability" that blockchain offers.

In terms of information disclosure, state treasurers are required to list holdings, costs, and unrealized gains and losses in quarterly financial reports. Legislators supporting the bill verbally committed to "publishing on-chain addresses" to enhance transparency, but this was not written into the mandatory provisions. The bill also comprehensively prohibits the use of leverage, borrowing, or collateralization, aiming to minimize credit risk at the cost of giving up all means of enhancing returns.

New Hampshire has taken a very conservative approach: small proportions, single assets, and extreme caution, but it also directly ties taxpayers to the volatility of Bitcoin prices.

Arizona: passive income, zero tax burden, staking allowed

Arizona has made "not using a single penny of tax revenue" its core selling point. The new law allows the state government to transfer unclaimed crypto assets (including assets with identifiable but incomplete private keys) into the newly established "Bitcoin and Digital Asset Reserve Fund" after the three-year period for finding the owners expires.

The fund can also legally receive all derived airdrops and staking rewards, forming a compound interest cycle, without the need to apply for an additional budget from the parliament.

More boldly, the scope of assets has no market capitalization or liquidity thresholds set by the legislation; any crypto assets that fall into the hands of state governments can enter reserves. Theoretically, anything from Bitcoin to niche tokens with daily trading volumes of only a few tens of thousands of dollars could be included; state governments diversify their risk by holding a variety of assets, but this also exposes them to the high-risk area of price manipulation in low market cap tokens.

Custody must be entrusted to a licensed compliance agency in Arizona; allowing assets to participate in overall on-chain staking for yield. This makes the state government the first active on-chain participant, and if a validator is penalized or a smart contract fails, the losses will similarly be recorded in the public sector's accounts.

In terms of liquidity management, the new law only allows state treasurers to convert up to 10% of non-Bit holdings into cash for subsidizing general fund expenditures; the Bitcoin portion is legislatively locked and cannot be utilized unless further legislation is enacted. Information disclosure adopts a "annual report + parliamentary appropriation for usage" dual oversight mechanism, but there is no mandatory public disclosure of on-chain addresses, resulting in lower transparency than decentralized standards.

Arizona views Bitcoin as an "unexpected windfall," amplifying the value of idle assets through staking and airdrops, cleverly avoiding taxpayers' scrutiny, but also placing the state government at the forefront of on-chain operational risks.

Progress in Other States

Texas: Progress is relatively fast, the Senate passed it in February, and it is currently out of the House Finance Committee, awaiting a full house vote before June 2. The plan is to establish a state strategic Bitcoin reserve, with funding sources including state allocations and private donations, initially proposing to allocate $21 million. It limits assets to a market cap of no less than $500 billion (which actually only includes Bitcoin). If the allocation is realized, it will become the first major state to actively purchase cryptocurrencies using public funds.

Oklahoma: Progress has been mediocre, with the House passing it 77:15 in March, but it was rejected by the Senate Taxation Committee on April 14, and the session has failed. The original plan was to allow state treasuries and retirement funds to allocate Bitcoin.

Illinois: Progress is slow, HB 1844 has only completed one reading and remains in the rules committee. The plan only accepts Bitcoin donations, the state government cannot purchase proactively, and there is a mandatory 5-year holding period before it can be utilized.

Missouri: Progress has stalled, and no further hearings have been scheduled since the completion on March 24. The original plan was to accept donations and allow the state government to manage the cold wallet independently.

Florida: Case dismissed, HB 487 / SB 550 "dismissed" on May 6. Originally planned to allow public funds to invest in Bitcoin, with no market cap restrictions.

Conclusion

Currently, the scale of Bitcoin purchases by state governments is limited and has little impact on market liquidity. Even with full positions, New Hampshire only has 300-400 million USD, and it is even more difficult for Arizona to reach a billion-level scale in the short term. In contrast, the 24-hour spot trading volume of Bitcoin has long maintained at 60-70 billion USD, and even if state governments enter the market in one go, it would only account for less than 0.1% of the market's daily liquidity.

The influence of legislation is mainly reflected in sentiment rather than actual capital. Within 48 hours of the signing of the two state bills, the price of Bitcoin rose from $96,000 to nearly $100,000, with a weekly increase of about 3%. During the same period, discussions on social media related to "Bitcoin reserves" increased by over 240% week on week. However, trading volume did not increase correspondingly, indicating that this is more of a "headline effect" rather than a large amount of spot being absorbed.

The narrative of official holdings of Bitcoin has been partially digested by the market, and what truly determines the market trend will be the speed of legislation implementation and the actual amount of fiscal allocations. Only when the three conditions of legislation, allocations, and on-chain addresses are met simultaneously can the rise in Bitcoin's price be primarily attributed to state strategic reserves.