North Carolina lawmakers have proposed a new bill suggesting that the state's public funds and retirement system allocate up to 10% of their investments into Bitcoin ETFs. This initiative could mean over $10 billion of public funds flowing into Bitcoin-related funds. This move not only reflects the state government's interest in crypto assets but also marks a breakthrough for Bitcoin ETFs in the U.S. public investment system. However, there remains a significant divide between supporters and opponents, and policy uncertainty continues to be an important variable in the market.

Bitcoin ETF Enters the Public Fund Investment Horizon

In recent years, Bitcoin and its related financial products have gradually entered mainstream capital markets. In January 2024, the U.S. Securities and Exchange Commission (SEC) officially approved several spot Bitcoin ETFs, providing institutional investors with a legal and compliant way to invest in Bitcoin. Although the bill proposed by North Carolina does not directly mention Bitcoin, it requires investments in ETFs tracking digital assets with a market capitalization of at least $750 billion, and currently, the only crypto asset that meets this standard is Bitcoin.

This proposal means that the state government could incorporate Bitcoin into the asset allocation of public and retirement funds by directly investing in Bitcoin ETFs or entrusting third-party institutions to manage them. Given the large scale of North Carolina's public funds, if the bill passes, at least $10 billion could flow into Bitcoin ETFs.

Economic Logic Behind Policy Promotion

1. Long-term Investment Return Potential

The long-term investment value of Bitcoin is increasingly recognized by institutions. Since its inception in 2009, Bitcoin has experienced multiple severe fluctuations, but the overall price trend has been upward. From the perspective of institutional investors, Bitcoin, as "digital gold," possesses long-term anti-inflation capabilities due to its scarcity and decentralized characteristics. If Bitcoin continues to appreciate, state government funds are expected to achieve considerable investment returns.

2. Asset Diversification and Risk Hedging

The investment portfolio of North Carolina's public funds has traditionally been dominated by stocks, bonds, and real estate. Introducing Bitcoin ETFs as alternative assets helps diversify risks and reduce the fund's dependence on traditional financial market fluctuations. Additionally, some studies suggest that the price volatility of Bitcoin does not correlate completely with traditional assets, potentially providing a certain hedging property during financial market turmoil.

3. Competing for Financial Innovation and Technological Leadership

North Carolina has been promoting crypto-friendly policies in recent years, such as prohibiting state government acceptance of central bank digital currency (CBDC) payments. This indicates the state's desire to gain a competitive edge in the crypto finance sector. The proposal to invest in Bitcoin ETFs is another step for the state to strengthen its position in technology and financial innovation. If successful, North Carolina could become the first state in the U.S. to officially include Bitcoin ETFs in its public investment portfolio, attracting more tech companies and investment institutions.

Policy Resistance and Potential Risks

Despite the support from the state's House Speaker, Destin Hall, investment in crypto assets still faces policy and market uncertainties.

Regulatory Environment Uncertainty: Although Bitcoin ETFs have been approved by the SEC, the U.S. government is still imposing strict regulations on the crypto industry. For instance, the U.S. Treasury, SEC, and CFTC (Commodity Futures Trading Commission) are still discussing stricter regulatory frameworks for crypto assets, and future policy changes may affect the legality or investment returns of ETFs.

Public and Legislator Discrepancies: Crypto assets remain controversial, and some legislators have proposed banning or strictly regulating crypto mining in certain areas of North Carolina (such as Henderson, Polk, and Rutherford counties). This proposal may spark intense discussions within the legislative body, and its final outcome remains uncertain.

Trends in Crypto Investment Across U.S. States

North Carolina is not the only state considering investing public funds in Bitcoin. Currently, over a dozen states in the U.S. have proposed similar bills involving investments in Bitcoin or stablecoins. Montana, Maryland, and Kentucky just submitted related proposals last week. However, there are significant differences in the investment scope and methods among states:

• Direct Investment: Some states allow direct holdings of Bitcoin, such as Wyoming, which has enacted laws supporting state governments to hold Bitcoin as reserve assets.
• ETF Investment: Some states choose to invest in Bitcoin through compliant channels like ETFs, as in the case of North Carolina's proposal, which uses ETF investments to reduce regulatory risks.
• Stablecoin Pilot: States like Colorado and Utah have begun exploring public fund investments in stablecoins and piloting tax payments using stablecoins.

This trend indicates that state governments in the U.S. are exploring the feasibility of investing in crypto assets while maintaining a degree of policy flexibility to adapt to market changes.

Conclusion: Can Bitcoin ETF Enter Public Funds?

The bill proposing to invest in Bitcoin ETFs in North Carolina, regardless of whether it ultimately passes, reflects the open attitude of U.S. state governments toward investing in crypto assets. The legality, transparency, and liquidity of Bitcoin ETFs make them the preferred channel for public funds to allocate crypto assets. However, high volatility, policy uncertainty, and social divisions remain the main obstacles to the proposal's implementation.

If the bill is passed, it could not only promote the further maturation of the Bitcoin ETF market but also encourage more states to follow suit, accelerating the adoption of Bitcoin and other digital assets in public investments. At the same time, this raises higher demands on regulatory agencies to find a balance between financial innovation and investment safety.

In the coming months, the progress of this bill will become a focal point for the crypto market and institutional investors. If North Carolina successfully takes this step, it will become the first local government in the world to officially allow public funds to invest in Bitcoin ETFs, further promoting the mainstreaming of Bitcoin.

Disclaimer: The above content does not constitute investment advice.

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