Michigan Advances Legislation on Crypto Reserve

KEY FACTS: Michigan's House Bill 4087, which advanced to its second reading and was referred to the Committee on Government Operations, proposes allowing the state treasurer to invest up to 10% of the state's countercyclical budget and economic stabilization fund in cryptocurrencies, marking a bold step toward creating a strategic crypto reserve. Introduced by Representatives Bryan Posthumus and Ron Robinson, the legislation emphasizes secure custody solutions, including government-controlled private keys, encrypted transactions, and independent audits, while permitting lending of crypto assets to generate yields without increasing financial risk. The bill's broad definition of eligible digital currencies, without specifying Bitcoin, has sparked debate, with critics like the Michigan Bitcoin Trade Council warning of risks from lesser-known assets.


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Source: Seal of Michigan


Michigan Advances Legislation on Crypto Reserve

Michigan lawmakers are pushing forward with groundbreaking legislation aimed at creating a strategic cryptocurrency reserve. House Bill 4087, which would empower the state treasurer to allocate public funds into digital assets, has advanced to its second reading in the House and been referred to the Committee on Government Operations. This development marks a significant step in Michigan's evolving relationship with blockchain technology.

The bill, introduced in February by Republican Representatives Bryan Posthumus and Ron Robinson, seeks to amend the Michigan Management and Budget Act. At its core, HB 4087 proposes allowing the state treasurer to invest up to 10% of funds from two key stabilization mechanisms, including the "countercyclical budget" and the "economic stabilization fund." These reserves, designed to buffer against economic downturns, could soon include a diversified basket of cryptocurrencies, reflecting a broader national trend where states are increasingly viewing digital assets not just as speculative tools, but as viable components of long-term fiscal strategy.

What sets Michigan's proposal apart is its meticulous emphasis on security and compliance, addressing head-on the volatility and risks associated with cryptocurrency investments. The legislation outlines three primary methods for holding these assets. First, a "secure custody solution" tailored for government use. Second, engagement with qualified custodians such as banks, trust companies, or state-regulated entities, and third, investments in exchange-traded products (ETPs) offered by registered investment companies.

Under the bill's provisions, any custody solution must adhere to stringent technical standards to safeguard public funds. These include exclusive government control over private keys, ensuring no third-party interference. Transactions would require end-to-end encryption, with no access permitted via smartphones to minimize hacking vulnerabilities. Storage facilities must be housed in geographically diversified, secure data centers, and all operations would necessitate multiparty authorization for transfers. To maintain ongoing integrity, regular independent security audits would be mandatory, providing layers of oversight that could serve as a model for other jurisdictions.

Perhaps most intriguingly, the bill greenlights the state to lend out its cryptocurrency holdings to generate additional yields, a practice common in traditional finance but novel in the crypto space. However, this is tempered by a critical caveat, in that, such lending cannot amplify the overall financial risk profile of the state's portfolio. This balanced approach aims to harness crypto's potential upside, while mitigating the downside risks that have plagued retail investors.

While the bill's structure is robust, it has ignited controversy over its scope. Notably absent is any explicit mention of Bitcoin (BTC), the world's largest cryptocurrency by market capitalization. Instead, HB 4087 adopts a broad definition of eligible "digital currencies". This means any asset that employs encryption to regulate the generation of units and the transfer of funds, operating independently of a central authority like a central bank. This inclusive language could theoretically encompass not just Bitcoin, but also Ethereum, Solana, or even lesser-known altcoins.

This flexibility has drawn sharp criticism from crypto purists. The Michigan Bitcoin Trade Council, a prominent advocacy group, has voiced strong opposition, arguing that the absence of safeguards – such as a minimum market capitalization threshold – opens the door to "unnecessary risk." They further cautioned that venturing beyond Bitcoin into "centralized and subject to great risk" alternatives could expose taxpayers to undue volatility and regulatory pitfalls.

Proponents, however, counter that the bill's agnostic stance fosters innovation and diversification. By not handcuffing the state to a single asset, Michigan can adapt to the rapidly evolving crypto landscape, potentially capturing gains from emerging technologies like decentralized finance (DeFi) or layer-2 scaling solutions. Representatives Posthumus and Robinson have framed the initiative as a forward-thinking hedge against inflation and fiat currency devaluation, drawing parallels to how gold reserves have historically stabilized economies.

Michigan's bill arrives at a pivotal moment in the American crypto narrative. According to tracking resources like Bitcoin Laws and the Bitcoin Reserve Monitor, the state is now among a select group advancing similar proposals. Massachusetts and Ohio have bills in committee stages, mirroring Michigan's progress, while 17 other states have pending legislation under consideration.

Yet, the path has not been smooth for all. Only three states, New Hampshire, Arizona, and Texas, have successfully enacted laws permitting state treasurers to invest in Bitcoin and other crypto assets. In contrast, strategic Bitcoin reserve initiatives have faced outright rejection in Montana, North Dakota, South Dakota, Wyoming, and Pennsylvania. These setbacks underscore the polarized views on crypto at the state level.



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