Michigan Advances Crypto Reserve Bill Allowing 10% Investment in Digital Assets

TLDR

• Michigan’s House Bill 4087 allows up to 10% investment in cryptocurrency reserves.
• The bill includes strict rules for custody solutions and security audits of digital assets.
• The Michigan Bitcoin Trade Council opposes the bill, fearing risks from non-Bitcoin assets.
• Michigan joins states like Texas and New Hampshire in exploring state-level crypto reserves.

Michigan has advanced a key piece of legislation, House Bill 4087, which would enable the state to invest in cryptocurrency as part of its strategic reserve. The bill, introduced by Republican Representatives Bryan Posthumus and Ron Robinson, is now moving through the legislative process and has reached a second reading. This development reflects Michigan’s interest in digital assets as part of its state financial strategy.

The proposed law seeks to amend the Michigan Management and Budget Act, allowing the state treasurer to allocate up to 10% of funds from Michigan’s countercyclical budget and economic stabilization fund into cryptocurrencies. While the bill does not explicitly mention Bitcoin, it provides a framework for holding digital assets, with strict guidelines for custody and security measures.

Custody and Security Measures for Digital Assets

House Bill 4087 outlines clear rules for how Michigan’s crypto assets must be managed. According to the bill, the state must store its digital assets in one of three secure methods: a “secure custody solution,” a qualified custodian such as a bank or trust company, or exchange-traded products (ETPs) from registered investment companies.

To ensure the highest security, the bill mandates that the state must have exclusive control over private keys and employ end-to-end encryption for all data related to the assets. It also requires the use of geographically diversified secure data centers, multiparty authorization for transactions, and regular independent security audits. These measures are designed to protect the state’s digital holdings from unauthorized access or cyber threats.

Additionally, the bill allows Michigan to loan out cryptocurrency to generate additional revenue, but only if it does not introduce excessive financial risk. This aspect of the bill aims to enhance the utility of the state’s digital reserves, helping to potentially increase the value of the assets over time.

Opposition from the Michigan Bitcoin Trade Council

While the bill has gained support, it has also faced opposition, particularly from the Michigan Bitcoin Trade Council. This advocacy group, which supports Bitcoin adoption, argues that the bill’s lack of a market capitalization threshold leaves the door open for the state to invest in riskier, more speculative cryptocurrencies.

The council insists that only Bitcoin should be included in the state’s crypto reserve due to its proven track record of stability and security.

They argue that other cryptocurrencies, being more centralized and volatile, could expose Michigan’s finances to unnecessary risk. The Michigan Bitcoin Trade Council’s position highlights concerns over the potential for the state to invest in less established digital assets that could collapse or experience significant price fluctuations.

Broader Trend of State-Level Crypto Reserves

Michigan’s move to explore a state-level crypto reserve is part of a broader trend across the United States, as states consider how to incorporate digital assets into their public finance strategies. Michigan joins other states, including Texas, New Hampshire, and Arizona, which have already passed laws allowing their treasurers to invest in cryptocurrencies.

These states are recognizing the potential for digital assets like Bitcoin to serve as an inflation hedge or a store of value. As the state of Michigan moves forward with its legislation, it could set a precedent for other jurisdictions looking to embrace cryptocurrency as part of their long-term investment strategies.

The growing trend of state-level crypto reserves has not been without challenges, with several states, including Montana, North Dakota, and South Dakota, rejecting similar bills. Nevertheless, the continued push for digital asset adoption at the state level signals a significant shift in the way cryptocurrencies are viewed within the broader financial system.

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