U.S. State Governments Accelerate Embrace of Bitcoin as Strategic Reserve

Recently, several state governments in the United States have begun to implement plans to incorporate Bitcoin into their state strategic reserves. Although there has been no clear action at the federal level, local governments have started to actively lay out their strategies. Currently, two states have officially passed legislation to include Bitcoin in their state treasury, and five other states are in the legislative preparation stage. There are significant differences among the states in terms of funding sources, allocation limits, and custody models, reflecting the varying attitudes of local governments towards high-volatility decentralized assets.

Pioneer Model in New Hampshire and Arizona

In just two days, New Hampshire and Arizona completed legislation and received the governor's signature, officially ushering in the state-level Bitcoin reserve era. The plans and risk control mechanisms adopted by the two states are vastly different, fully showcasing the trade-offs under different political and economic objectives.

New Hampshire: Cautious and Conservative Fiscal Diversification

New Hampshire has adopted a strategy similar to the diversification of assets by the Treasury Department. The new bill authorizes the state treasury to convert up to 5% of the general fund and emergency fund into digital assets with a market value exceeding $500 billion for at least one year, which currently only Bitcoin meets.

Lawmakers emphasize that the 5% cap serves as a safety valve, allowing the holding limit to be adjusted according to the scale of public finances, thereby avoiding the risk of heavy investment in one go. However, the legislation does not specify whether passive reduction is necessary when the scale of public finances decreases.

The new legislation offers three options for asset custody.

1. The state government independently manages the multi-signature cold wallet.
2. Entrust a licensed special purpose deposit institution or regulated bank to custody.
3. Hold Bitcoin ETFs approved by the SEC or NFA

If you choose a self-managed cold wallet, it must meet seven technical standards such as geographical diversification, hardware isolation, and annual security testing to minimize the risk of private key leakage. However, if you choose an ETF, state governments can only obtain a trust certificate, and transparency will return to the level of traditional financial ledgers.

In terms of information disclosure, the state treasury department must list holdings, costs, and unrealized gains and losses in the quarterly financial report. Legislators supporting the bill verbally committed to "publishing on-chain addresses" to enhance transparency, but this was not written into mandatory provisions. The bill also comprehensively prohibits the use of leverage, borrowing, or collateral, aiming to reduce credit risk to zero, but it also forfeits all potential means of enhancing returns.

Overall, New Hampshire is taking a small proportion, single asset, extremely conservative approach, but it also directly ties taxpayers to the fluctuations in Bitcoin prices.

Arizona: Innovative Radical Asset Activation

Arizona has made "no tax collection" its core selling point. The new law allows the state government to transfer unclaimed crypto assets (including identifiable assets with incomplete private keys) into the newly established "Bitcoin and Digital Asset Reserve Fund" after a three-year search period expires. Subsequently, the fund can also legally collect all derived airdrops and staking rewards, creating a compounding cycle without needing to apply for additional budgets from the legislature.

Even bolder is the scope of investment targets; the bill does not set any market capitalization or liquidity thresholds. As long as the crypto assets fall into the hands of the state government, they can be included in the reserves. Theoretically, everything from Bitcoin to small coins with daily trading volumes of only tens of thousands of dollars could be incorporated. The state government diversifies its holdings to spread risk, but this also exposes it to high-risk areas of price manipulation in small coins.

Custody must be conducted by a licensed compliance institution in Arizona, while allowing assets to participate in full-chain staking to generate returns. This makes the state government an active on-chain participant for the first time, but if there are validator penalties or smart contract failures, the losses will also be borne by the public sector.

In liquidity management, the new law only allows state treasuries to convert up to 10% of non-Bitcoin holdings into cash to subsidize general fund expenditures. The Bitcoin portion is locked by the bill and cannot be accessed unless further legislation is enacted. The information disclosure adopts a "annual report + parliamentary appropriation for usage" dual oversight mechanism, but it does not mandate the 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 sidestepping taxpayer scrutiny, but also placing the state treasury at the forefront of on-chain operational risks.

Progress in Other States

Legislation is also progressing in several other states, except for New Hampshire and Arizona.

• Texas: Progress is rapid, the Senate passed the bill in February, and it has now passed the House Finance Committee, awaiting a vote by the full House. Plans to establish a state-level Bitcoin strategic reserve, with an initial allocation of 21 million dollars.
• Oklahoma: The House passed the bill in March with a vote of 77:15, but it was rejected in April by the Senate Tax Committee, and it has failed this session.
• Illinois: The bill has only completed its first reading and is still in the rules committee stage.
• Missouri: No progress has been made since the public hearing was completed in March.
• Florida: The related bill was withdrawn in early May.

Market Impact Analysis

Currently, the potential buying scale in the two states that have passed legislation is limited. Even with full positions, New Hampshire only has about 300-400 million USD, and Arizona is unlikely to reach a billion scale in the short term. In contrast, Bitcoin's daily trading volume has long maintained at 60-70 billion USD, and even if state-level buying enters the market in one go, it only accounts for less than 0.1% of the market's daily liquidity.

After the legislative news broke, the price of Bitcoin rose from $96,000 to nearly $100,000 within 48 hours, with a weekly increase of about 3%. During the same period, the volume of social media discussions related to "Bitcoin reserves" increased by over 240% week-over-week. However, trading volume did not increase correspondingly, indicating that this is more of an emotion-driven rise rather than a result of substantial spot demand.

It is worth noting that the 30-day actual annualized volatility of Bitcoin has dropped to 45-50%, a new low since 2021, but still far higher than traditional assets. If there is a one-day drop of more than 20%, the 5% holdings in New Hampshire will face impairment pressure, while Arizona will also have to bear the additional risks of staking penalties or custodial contract errors.

Conclusion

The trend of state-level governments incorporating Bitcoin into their strategic reserves has already attracted market attention, but what truly determines the market situation will be the speed of legislative implementation and the actual scale of fiscal allocations. Only when all three conditions are met—legislation passed, funding in place, and on-chain addresses made public—can the increase in Bitcoin prices be attributed to state-level strategic reserves. Investors should continue to monitor the legislative progress, allocation status, and the public availability of on-chain wallet addresses in various states.