Texas Poised to Become First State with Strategic Bitcoin Reserve
By Meredith McKelvey
Reporting Texas
In an all-or-nothing gamble, members of the Texas Legislature are looking to invest state money in highly volatile cryptocurrencies, with the hope that one day digital assets like Bitcoin will stabilize and exponentially increase in value.
Senate Bill 21, which would create a state-managed “Texas Bitcoin Reserve,” recently progressed through the Texas Senate. If the bill survives the next round of voting in the House, Texas could become the first state to purchase novel — and unpredictable — digital currencies with taxpayer dollars.
Initially viewed as a fleeting technological trend promoted by naive idealists and con artists, cryptocurrencies are increasingly accepted as a decentralized alternative to traditional currencies. However, they are still far from widespread use, with economists identifying cryptocurrencies as speculative investments. While countries around the world wrestle with the idea of regulating digital assets like Bitcoin, some politicians argue that cryptocurrencies are an inevitable facet of modern finance which governments should embrace.
“People believe that finite resources, whether they’re land, or gold, or Bitcoin are the way of the future,” said Sen. Charles Schwertner, R-Georgetown, who introduced Senate Bill 21. “Some cryptocurrencies are more volatile than others, but the bottom line is Bitcoin in particular has been recognized as digital gold by the U.S. Treasury.”
In the last decade, Texas has become one of the largest known producers of Bitcoin in the world. Bitcoin mines — large warehouses with computer servers — generate “currency” each time a computer solves a complex mathematical problem. Over time, the mathematical equations needed to mine a single Bitcoin complexify, requiring significant amounts of electricity and water to power and cool the servers.
Though Senate Bill 21 would allow Texas to purchase cryptocurrencies that have surpassed an average market capitalization of $500 billion over a 12-month period, Bitcoin is the only digital currency that is projected to meet this requirement in the near future.
According to Schwertner, Texas’ strategic Bitcoin reserve would function as an economic buffer during periods of recession or crisis. Texas already maintains an Economic Stabilization Fund, better known as the “Rainy Day Fund,” which will soon reach its cap of $26.5 billion.
Unlike the Rainy Day Fund, which is tied to the dollar, the value of Bitcoin fluctuates wildly. After hitting a record high of $109,000 in January, Bitcoin’s value plunged below $85,000 in recent weeks due to sell-offs likely caused by alarm over inflation and the Trump administration’s looming tariffs.
“To be quite frank, Bitcoin could go to zero or it could go to a million, 2 million, 5 million. I don’t know. I don’t think anyone knows,” Schwertner said during a Senate Committee on Business and Commerce hearing on the bill. “I do know that if we continue to spend on the federal level like we are, the dollar will continue to lose purchasing power.”
Cesare Fracassi, director of the University of Texas’ Blockchain Initiative and cryptocurrency adviser, does not believe that the primary purpose of a strategic Bitcoin reserve is to stabilize the economy. Instead, he said a Bitcoin reserve is intended to signal that Texas is willing to do business with the cryptocurrency industry.
“People have this idea that Bitcoin is a hedge against inflation or against bad times,” Fracassi said. “In reality, right now it’s not.”
Citing the collapse of the cryptocurrency market in 2020, when the COVID-19 pandemic caused widespread economic distress, Fracassi said digital assets like Bitcoin are still too unstable to be relied on during recessions.
“The Rainy Day Fund usually is invested very, very conservatively, meaning that you want to be investing it in something that doesn’t change value very much,” Fracassi said. “The last thing you want to do is invest in something that, when you have an economic crisis, disappears.”
Fracassi is not the only critic of Senate Bill 21. Cyrus Reed, conservation director of the Sierra Club’s Lonestar Chapter, told the Senate Committee on Business and Commerce that a strategic Bitcoin reserve would result in “significant pressure to invest in highly water-intensive and energy-intensive industries.”
Citing concerns over Texas’ electricity grid and water infrastructure resiliency, Reed said that small businesses and homeowners will ultimately suffer increased costs associated with energy consumption. Noise pollution caused by servers in Bitcoin mines is another source of apprehension, with a group of residents in Granbury filing a lawsuit against a company operating a Bitcoin mine in the area.
Lee Bratcher, president of the Texas Blockchain Council, said that the potential reward of a strategic Bitcoin reserve outweighs the risks associated with purchasing a volatile asset. According to Bratcher, buying cryptocurrencies for the strategic reserve with a “negligible amount” of taxpayer dollars relative to the state’s overall budget is an asymmetric investment that could result in windfall returns.
The Texas Blockchain Council lobbies for over 90 companies to enact policies in Texas that are advantageous for the digital asset industry. Mara Holdings, Inc., a member company, has recently purchased land for Bitcoin mining sites.
Senate Bill 21 reflects the Republican Party’s surging interest in cryptocurrency. Echoing statements made during his campaign, President Donald Trump created a working group to usher in a “new era” of digital finance. On the same day that members of the Texas Senate voted overwhelmingly for Senate Bill 21, Trump signed an executive order establishing a national Strategic Bitcoin Reserve, which will be composed of cryptocurrencies seized from criminal and civil proceedings
Texas is not the only state entertaining the prospect of a strategic Bitcoin reserve. Around the country, legislators are racing to enact bills similar to Senate Bill 21, with bills proposing some variation of a cryptocurrency reserve filed in at least 28 state legislatures.
Despite warnings from economists and environmentalists about the potential ramifications of investing in Bitcoin, Senate Bill 21 remains one of Lt. Gov. Dan Patrick’s priority bills for this legislative session, indicating that it is likely to be codified into law.