Republicans Want to Stamp Texas' Seal on Bitcoin by Creating a "Strategic Reserve"

This latest of pet issues advanced by the crypto crew has somehow won priority status on Lieutenant Governor Dan Patrick's biennial honey-do list.

Despite a surprising move by a key lawmaker to remove an aspect of the bill that had attracted controversy, a state legislative panel on Thursday advanced a measure that would create a strategic reserve to invest in Bitcoin.

The Senate Business and Commerce Committee approved a revised version of the bill, Senate Bill 21, by a unanimous vote. The panel had focused on the bill at its last hearing on February 18.

The bill, authored by GOP Senator Charles Schwertner, would authorize and direct the Texas comptroller to establish a reserve fund, outside of the general treasury, through which the agency would have broad discretion to buy, sell, or otherwise invest in cryptocurrencies. As approved by the committee, the reserve would be limited to cryptocurrencies that have had an average market cap of $500 billion over 12 months—a threshold that only Bitcoin currently meets. The fund would be overseen by an advisory board of crypto investment experts appointed by the comptroller.

While no proposed funding has currently been set aside for the reserve, Schwertner said that he intended to ask legislative budget writers to provide some level of appropriation—potentially around $20 million for the next biennium. A Texas bitcoin reserve would not only serve as a symbol of the Lone Star State’s support of the crypto industry, Schwertner said, but would also send a message rebuking the federal government’s ballooning debt. He posited that the U.S. dollar is bound to crater at some point in the future, and a Bitcoin reserve would serve as a financial hedge for Texas when that happens.

“All fiat currency eventually goes to its natural worth, which is the paper it’s printed on,” Schwertner said at the February 18 hearing. “We can buy land. We can buy gold. I think Texas should have the option of evaluating the best performing asset [Bitcoin] of the last 10 years.”

Hilary Allen, a law professor at American University who specializes in financial regulation, said state crypto reserves are unwise. “There is simply nothing behind Bitcoin. It has no strategic use,” Allen told the Texas Observer. Cryptocurrencies like Bitcoin are, Allen says, effectively a “ponzi–like asset” with no tangible value, entirely dependent on a supply-and demand-market of speculation and manipulation.

“I think the only people this will benefit are the Bitcoin ‘whales,’ the people who are already heavily invested in Bitcoin,” she said, by providing a state-subsidized market for big investors who want to cash out.

If the state simply bought and held Bitcoin for years, it would merely prop up the market, while trying to strategically sell off its crypto holdings could cause the price to plummet.

Schwertner and his crypto cronies downplay those concerns and say that bitcoin has become a mainstream investment akin to traditional stocks and financial securities

Schwertner drafted the bill—an overhauled version of an earlier bill he filed—in consultation with the Texas Blockchain Council, a trade group that represents the crypto industry. Members of the group packed the hearing room, and the council’s president Lee Bratcher testified as the lead invited witness in support of the bill.

Comptroller Glenn Hegar also provided testimony that, while officially neutral, was generally in favor of the reserve. He also acknowledged that his office currently has the authority to invest in crypto funds but has opted not to do so.

One of the most controversial parts of Schwertner’s bill was a provision that would have allowed private citizens and corporations to donate Bitcoin or other cryptocurrency to the reserve. That raised concerns that private investors or companies could expose the strategic reserve to self-serving manipulation or promotion—and even provide a means for covert influence-peddling by foreign actors or other shadowy interests.

“If someone decides to give $10 billion [worth of crypto] to the state, they’re creating a market for themselves [and could effectively] manipulate the market using the imprimatur of the state,” said Senator Nathan Johnson, a Dallas Democrat, as he raised numerous concerns about the bill during the hearing. “I don’t want the state to be a tool of an investor. I would want this to be limited to just state allocations. I don’t want billionaire tech bros owning a branch of the state government.”

In a surprising move, Schwertner stripped the private donation measure out of his bill, which was then approved unanimously at a committee hearing on Thursday. Supporters of the Bitcoin reserve had said the donation component would ensure that there was limited risk to taxpayer funds. “The beauty of a Texas strategic Bitcoin reserve is it’s primarily driven by donations, and there’s really no risk to the Texas taxpayer. It’s only a net positive,” Bratcher previously told the Austin American-Statesman.

Bratcher told the Observer that the group nevertheless supports the modified Bitcoin bill.

“While we will miss the opportunity to encourage donations to the Texas Strategic Bitcoin Reserve