Arizona Governor Vetoes Bill to Create Bitcoin Reserve Fund from Seized Assets

Arizona Governor Katie Hobbs vetoed House Bill 2324 (HB 2324), which proposed the creation of a Bitcoin and digital asset reserve fund sourced from criminal forfeitures. The bill, which aimed to establish a "Bitcoin and Digital Assets Reserve Fund" within the Arizona State Treasury, was designed to consist solely of cryptocurrencies seized in criminal investigations. The fund would have allocated the first $300,000 in proceeds from any sale of seized crypto to the Arizona Attorney General’s Office, with any amount beyond that split between the Attorney General’s Office, the state’s general fund, and the proposed reserve fund.

Critics of the bill argued that this model would dilute local agencies’ incentives by cutting them out of the distribution pipeline. Without a clear benefit, local law enforcement might deprioritize cooperation with state-level digital asset seizures. Governor Hobbs cited jurisdictional complications and the potential to disincentivize law enforcement participation as key reasons for the veto. This is not the first time Hobbs has blocked crypto-related legislation. Her veto history includes Senate Bill 1025, which would have allowed up to 10% of Arizona’s treasury and pension funds to be invested in digital assets, Senate Bill 1373, which proposed the creation of a broader Digital Assets Strategic Reserve Fund, and Senate Bill 1024, which sought to enable state agencies to accept cryptocurrency for tax payments, fees, and other financial obligations.

The only crypto-focused bill signed into law so far is HB 2749, which governs how Arizona treats unclaimed digital assets presumed to be abandoned, making the state the second in the U.S. to address this niche regulatory issue. The failure of HB 2324 highlights broader challenges that state governments face when attempting to incorporate cryptocurrencies in the public financial sector. The bill’s central concept—putting whole digital assets seized by law enforcement to work in a public pool—has an inventive ring to it, but it also illustrates the tension between progressive crypto policy and the way criminal justice funding has been traditionally organized.

In diverting some forfeiture proceeds from local law enforcement, the bill produced enough opposition from constituencies critical to effective enforcement for easy repeal. This case also illustrates how crypto seizures are becoming more and more important in law enforcement work. As the seizure of virtual assets increasingly gains attention as part of illegal activity, how seized digital property should be handled, stored, and spent remains a question for the states. There’s also the legal gray zone when it comes to managing seized crypto. While federal law enforcement agencies have systems for storing and auctioning off confiscated digital assets, states are still developing protocols.

The establishment of a state-run reserve would also necessitate secure storage options, the abidance of federal anti-money laundering laws, and extensive internal controls. This complexity probably compounded the Governor’s concerns so that the veto was not just political but also logistical. Even though HB 2324 is dead, the idea of using seized crypto for the public good may not have seen its last day. The process could have included more input from involved parties. Lawmakers could modify the bill to require that local enforcement receive a share of the proceeds, or could seek additional pilot programs prior to full implementation. For now, the message from Arizona’s move is clear: Innovation on digital asset governance is welcome, as long as it’s consistent with law enforcement priorities, jurisdiction, and operational scope.