North Carolina House Approves 5% Crypto Investment in Public Funds

The North Carolina House of Representatives has passed a bill that allows the state's treasurer to invest public funds in approved cryptocurrencies. The Digital Assets Investment Act, or House Bill 92, was passed on its third reading on April 30 by a vote of 71 to 44. This legislation, introduced by Republican House Speaker Destin Hall in February, permits the treasurer to allocate up to 5% of the state’s investments into designated digital assets.

The investments can only be made after obtaining an independent third-party assessment confirming that the crypto holdings are maintained with a secure custody solution and that risk oversight and regulatory compliance standards are met. New amendments to the bill also allow the treasurer to examine the feasibility of allowing members of retirement and deferred compensation plans to elect to invest in digital assets held as exchange-traded products (ETPs).

The House also passed a related bill, the State Investment Modernization Act, or HB 506, with little discussion on April 30, in a 110 to 3 vote. This bill aims to create the North Carolina Investment Authority (NCIA) to take over investment management from the treasurer. If passed into law, authority to invest in digital assets would transfer from the treasurer to NICA, and it would require approval from its board of directors based on third-party assessments to make crypto investments.

North Carolina is second to Arizona in the state-level race to approve legislation allowing local governments to invest in cryptocurrencies. On April 28, Arizona’s House approved two bills, SB 1025 and SB 1373, proposing different methods for the state to establish a crypto reserve. Arizona is the only state whose House and Senate have passed crypto-related bills, which are both awaiting the governor's decision.

This move by North Carolina represents a significant shift in the state's approach to managing its pension funds. By permitting up to 5% of the fund's assets to be allocated to digital currencies, the state aims to leverage the potential growth and returns offered by the cryptocurrency market. This aligns with the growing trend among institutional investors to incorporate digital assets into their portfolios, recognizing their potential for high returns and diversification benefits.

The bill's passage has sparked both support and skepticism among lawmakers and financial experts. Proponents argue that investing in cryptocurrencies can provide significant returns and hedge against traditional market risks. However, critics have raised concerns about the volatility and regulatory uncertainties associated with digital assets. Despite these concerns, the bill's passage indicates a growing acceptance of cryptocurrencies as a viable investment option for state funds.

As the bill advances to the state Senate, it will undergo further scrutiny and debate. If passed by the Senate and signed into law, North Carolina will join a select group of states that have embraced cryptocurrency investments in their pension funds. This move could set a precedent for other states considering similar initiatives, potentially reshaping the landscape of public fund management and investment strategies.