Texas Becomes the First State in the U.S. to Establish an Independent Bitcoin Reserve Fund

Recently, Texas passed the SB 21 bill, becoming the third state in the U.S. to legislate the establishment of a state-level strategic Bitcoin reserve, and also the first state to set up an independent Bitcoin reserve fund supported by public funds. The state government has allocated $10 million to purchase Bitcoin over the next two years. This fund will be managed by the state comptroller and established outside the state financial system.

At the same time, the passage of Bill HB 4488 ensures that the reserve fund will not be affected by the state's periodic "sweeping" mechanism of funds, meaning it cannot be diverted for general fiscal purposes. Even if no Bitcoin has been purchased by next summer, the legal status of the reserve fund will continue to exist.

Main Content of SB21 Bill

The bill considers that Bitcoin and other cryptocurrencies have strategic potential to enhance Texas's fiscal resilience and can serve as tools against inflation and economic fluctuations. According to the bill, the Texas Strategic Bitcoin Reserve will be established as a dedicated fund outside of state finances, managed and operated by the Comptroller.

The bill provides:

1. The chief accountant can flexibly utilize assets for investment, exchange, sale, management, or holding.
2. Reserve funds can be jointly invested with the state treasury fund pool.
3. The comptroller shall not transfer reserve funds to the state treasury unless authorized.
4. The average market capitalization of investable cryptocurrencies in the past 24 months must not be less than $500 billion.

At the execution level, the comptroller may enter into contracts with third-party entities, including qualified custodians with cold wallet security custody technology and qualified liquidity providers assisting with asset purchase and management. The bill also allows the comptroller to use derivatives when it is beneficial to the reserves.

From Precious Metals to Bitcoin: Exploring Financial Sovereignty

The congressman involved in the drafting of the bill stated that this legislation is a protection of personal financial power, continuing the policy approach established by the Texas precious metals depository. He believes that strategic Bitcoin reserves and precious metals depositories are functionally complementary, both providing scarce, valuable resources that can be transferred between individuals, and both are effective means of combating inflation.

The Local Experiment of Bitcoin Strategic Reserves

Currently, several states in the United States are advancing similar Bitcoin reserve bills. Some experts believe that state governments, as "policy laboratories," can test new policies more quickly and in closer alignment with public opinion. The core significance of Strategic Bitcoin Reserves (SBR) is to preserve the value of public funds, combat inflation, and ensure that state governments can fulfill their obligations in the future.

The financial structure varies significantly between different states, with some states looking to integrate Bitcoin into their existing portfolios or experiment with more cutting-edge financial instruments such as "Bitcoin municipal bonds."

The custodian will be publicly tendered

The chairman of the Texas Blockchain Council stated that they are assisting cryptocurrency companies in establishing connections with the Texas Treasury Safekeeping Trust Company (TTSTC), showcasing their products and services, and will subsequently initiate a public and transparent bidding process. They hope to not simply purchase ETFs but to directly custody physical Bitcoin and hold the private keys.

The SB21 Act sets detailed conditions for "liquidity providers," but the definition of "qualified custodians" is more flexible, possibly to broaden the scope of competition. The Office of the Comptroller and TTSTC will need a certain learning process to assess various custody solutions.