North Carolina Proposes 5% State Retirement Funds in Cryptocurrencies

North Carolina lawmakers have introduced two significant bills in the House and Senate that propose allocating up to 5% of the state’s retirement funds into cryptocurrencies, including Bitcoin. The Investment Modernization Act (House Bill 506), introduced by Representative Brenden Jones on March 24, aims to create an independent investment authority under the state’s Treasury. This authority would determine which digital assets, defined as cryptocurrencies, stablecoins, non-fungible tokens (NFTs), or other electronic assets conferring economic, proprietary, or access rights, could be suitable for inclusion in the state retirement funds.

An identical bill, the State Investment Modernization Act (Senate Bill 709), was introduced into the state’s Senate on March 25. Unlike other crypto bills at the state level, these North Carolina bills do not set market cap criteria for digital assets. The newly created North Carolina Investment Authority would need to carefully weigh the risk and reward profile of each digital asset and ensure the funds are maintained in a secure custody solution. Notably, House Bill 506 was not drafted as a Bitcoin reserve bill, as it does not mandate the investment authority to hold Bitcoin or any digital asset over the long term.

In addition to these bills, on March 18, North Carolina senators introduced the Bitcoin Reserve and Investment Act (Senate Bill 327). This bill calls for the treasurer to allocate up to 10% of public funds specifically into Bitcoin. The bill, introduced by Republicans Todd Johnson, Brad Overcash, and Timothy Moffitt, aims to leverage Bitcoin investment as a “financial innovation strategy” to strengthen North Carolina’s economic standing. The treasurer would need to ensure that the Bitcoin is stored in a multi-signature cold storage wallet, and the BTC could only be liquidated during a “severe financial crisis,” with approval from two-thirds of North Carolina’s General Assembly. The bill would also create a Bitcoin Economic Advisory Board to oversee the reserve’s management.

This move by North Carolina is part of a broader trend among U.S. states exploring the potential of digital assets as a viable investment option for public funds. The proposed legislation aims to diversify the state's retirement portfolio by including digital assets, which have shown potential for high returns. By allocating a portion of state funds to these assets, North Carolina seeks to capitalize on the growth opportunities presented by the cryptocurrency market. However, the state's decision to invest in exchange-traded products, which are typically more stable than individual cryptocurrencies, mitigates some of the risks associated with the volatility of digital assets.

The introduction of these bills comes at a time when other states are also considering similar measures. This trend reflects a growing recognition of the potential benefits of digital assets, including their ability to provide diversification and potentially higher returns compared to traditional investments. However, the regulatory landscape for cryptocurrencies remains uncertain, and states must navigate a complex web of federal and state regulations to implement such investments.

The proposed legislation in North Carolina also highlights the need for clear guidelines and oversight in the management of digital assets. The state's retirement system will need to establish robust frameworks for selecting and managing these investments, ensuring that they align with the system's long-term goals and risk tolerance. This includes conducting thorough due diligence on the digital assets being considered, as well as implementing measures to protect against fraud and market manipulation.

The acceptance of crypto assets directly by funds, as seen in other initiatives, removes significant barriers previously preventing crypto holders from participating in traditional investment vehicles. This trend is likely to continue as more states explore the potential of digital assets and seek to integrate them into their financial systems. The proposed legislation in North Carolina is a significant step in this direction, and its success could pave the way for other states to follow suit.

In summary, North Carolina's proposed bills to add cryptocurrency to its state retirement system represent a bold move towards embracing digital assets as a viable investment option. While the potential benefits are significant, the state must also address the challenges and risks associated with this new asset class. The success of this initiative will depend on the establishment of clear guidelines, robust oversight, and effective management of these investments. As more states explore the potential of digital assets, North Carolina's experience will provide valuable insights into the opportunities and challenges of integrating cryptocurrency into public funds.