Connecticut Bans State Crypto Investments Amid Volatility Concerns

Connecticut has taken a decisive step in regulating cryptocurrencies by passing a bill that prohibits all state and local government investments in Bitcoin and other digital currencies. This legislation, known as Substitute for Raised H.B. No. 7082, now Public Act No. 25-66, not only bars government entities from purchasing, holding, or investing in virtual currencies but also prevents them from accepting crypto as a form of payment or creating any crypto reserves. This move is a stark contrast to other states like New Hampshire, Texas, and Arizona, which are actively exploring or have enacted Bitcoin reserve policies.

The new law is designed to prevent public funds from being used to speculate on volatile crypto assets. It explicitly states that the state treasury, local governments, and public agencies cannot hold or transact in crypto assets. This preemptive measure ensures that Connecticut's public funds are shielded from the risks associated with digital currencies, which some lawmakers view as a volatile and high-stakes financial world.

In addition to the investment ban, the legislation imposes strict requirements on crypto money transmission businesses operating in the state. These businesses must now meet detailed regulatory obligations, including clear disclosures about the risks associated with digital asset transactions. These disclosures must be written in English, conspicuously displayed, and include material risks such as price volatility, lack of insurance protections, and fraud exposure. Customers must also receive detailed receipts and be informed about who has custody of their assets. For users under 18, digital financial platforms must verify parental or legal guardian consent before allowing them to create or use crypto-related money-sharing accounts. The bill also defines virtual currencies held by licensed entities as property interests that can be claimed by customers, adding an extra layer of protection in bankruptcy or insolvency scenarios.

While Connecticut is tightening its regulations on cryptocurrencies, several other U.S. states are moving in the opposite direction. New Hampshire, for example, has established a state-level Bitcoin reserve, citing Bitcoin’s potential as a digital store of value. Texas, with a budget surplus, has embraced the notion of diversifying state holdings with Bitcoin. Arizona has also taken steps toward a crypto reserve policy. However, states like Florida, Wyoming, South Dakota, and North Dakota have shuttered or tabled comparable crypto moves due to concerns about volatility and regulatory uncertainty. At the federal level, Donald Trump signed an executive order to support creating a national Bitcoin reserve, but the order is vague and its near-term implementation is unclear.

The passage of H.B. 7082 has sparked mixed reactions from industry participants. Crypto advocacy groups argue that Connecticut is closing the door on innovation and future finance trends, potentially discouraging blockchain-based startups from doing business in the state. Supporters of the bill, however, see it as a necessary guardrail to prevent the abuse of public funds and ensure that crypto-related companies operate prudently. Some observers believe this could lead to a schism in innovation hubs, with crypto-friendly states like Texas drawing more blockchain investment while Connecticut loses out as innovation moves elsewhere.

Connecticut’s decision is part of a larger discussion across the United States about the role of state governments in crypto regulation. As the SEC and the CFTC debate how digital assets should be categorized at the federal level, states are forging their own paths. Connecticut’s ban could influence other risk-averse legislatures to issue similar restrictions, while crypto-native states double down on their support for digital currencies. This regulatory divergence highlights the ongoing debate over the appropriate level of state involvement in the crypto landscape.