North Carolina Proposes 5% Digital Asset Allocation in State Funds

North Carolina has introduced two significant bills aimed at opening the door for cryptocurrency investments within the state. On March 24 and 25, lawmakers presented House Bill 506 (HB 506), titled the Digital Asset Investment Bill, and Senate Bill 709 (SB 709), known as the State Investment Modernization Act. These bills propose allowing state-managed funds to allocate a portion of their holdings into digital assets such as cryptocurrencies, stablecoins, and NFTs.

Under these proposals, investments in digital assets would be capped at 5% of the total balance of each designated fund. This includes the Teachers’ and State Employees’ Retirement System, the Local Governmental Employees’ Retirement System, the Firefighters’ and Rescue Workers’ Pension Fund, the Escheat Fund, and more than 20 other special funds supporting various state institutions and programs.

SB 709 goes a step further by establishing a new independent agency, the North Carolina Investment Authority, to oversee all investment programs. This agency would have the authority to invest in digital assets, with a 5% cap per fund, provided those investments meet institutional standards for custody, compliance, and risk management. The bill also outlines detailed governance rules, staffing structure, and oversight procedures for the new body.

In contrast, HB 506 focuses specifically on cryptocurrency investments. It allows the State Treasurer to make digital asset investments without creating a new authority or altering current governance structures.

These bills do not mandate the North Carolina Investment Authority to hold Bitcoin or other cryptocurrencies as a reserve, unlike proposals in other US states such as Texas and Arizona. This approach reflects a more cautious stance, focusing on the potential benefits of digital asset investments without the commitment of holding them as long-term reserves.

Amid these developments, two other bills are also under consideration in North Carolina. The NC Digital Assets Investments Act (HB 92) and the Bitcoin Reserve and Investment Act (SB 327) offer different approaches to cryptocurrency investments. Senate Bill 327 is the only bill that calls for the creation of a Bitcoin reserve, proposing that up to 10% of public funds be allocated to Bitcoin, with assets stored in a multi-signature cold wallet. The Bitcoin could only be liquidated during a declared financial emergency, requiring approval from two-thirds of the General Assembly, while a Bitcoin Economic Advisory Board would oversee the reserve.

House Bill 92 adopts a broader definition of digital assets, including cryptocurrencies, stablecoins, and virtual currencies. It authorises the State Treasurer to invest funds in digital assets, but only through exchange-traded products listed on recognised stock exchanges and approved by the US Securities and Exchange Commission.

These legislative efforts in North Carolina are part of a broader trend across the US, where 41 Bitcoin reserve bills have been introduced in 23 states. However, proposals have faced rejection in several jurisdictions, with Utah recently making last-minute amendments to drop its Bitcoin investment plans.

The introduction of these bills in North Carolina signals a growing interest in integrating digital assets into state investment portfolios. While the bills do not mandate holding cryptocurrencies as reserves, they provide a framework for cautious exploration of this emerging asset class. The establishment of the North Carolina Investment Authority under SB 709 and the specific focus on digital asset investments in HB 506 reflect a strategic approach to leveraging the potential benefits of cryptocurrencies while managing associated risks.