Florida is set to implement a strategic Bitcoin reserve in the first quarter of 2025, as reported by The Street. This initiative, supported by influential political figures and blockchain supporters in Florida, reflects the state’s commitment to leading in Bitcoin adoption.
Florida’s Ambitious Step: A Bitcoin Reserve
Samuel Armes, the president of the Florida Blockchain Business Association (FBBA), has disclosed that the state is expected to create a strategic Bitcoin reserve in the upcoming legislative session beginning in the first quarter of 2025. This initiative builds upon Florida’s current investments in Bitcoin and cryptocurrency, especially through its $185.7 billion pension fund, ranked as the fourth largest in the U.S.
Armes suggests allocating 1% of this pension fund—approximately $1.857 billion—towards the Bitcoin reserve. This investment is envisioned to offer the state both financial diversification and enhanced exposure to the rapidly evolving cryptocurrency market.
Moreover, Armes pointed out the anticipated budget surplus of $116.5 billion for fiscal year 2024-2025, indicating that even a small 1% allocation—around $1.16 billion—could be directed towards Bitcoin investments.
Key Leaders Advocate for Bitcoin
Florida’s pro-Bitcoin leadership, including Governor Ron DeSantis, has played a pivotal role in promoting the state’s cryptocurrency ambitions. DeSantis, recognized for his resistance to central bank digital currencies (CBDCs), has advocated for financial freedom and the right to utilize cryptocurrencies such as Bitcoin. In May 2023, during a discussion with Elon Musk, DeSantis emphasized the necessity of safeguarding Bitcoin’s role in financial independence.
Support from political figures in the state legislature continues, with leaders like Florida House Speaker Danny Perez and Senate President Ben Albritton actively endorsing Bitcoin-related legislation, including measures aimed at shielding Florida from any potential adverse effects of CBDCs.
Florida’s initiative to incorporate Bitcoin as a reserve asset corresponds with the vision of state leaders like Senator Cynthia Lummis from Wyoming, who has commended Florida’s plan as part of a larger “race to the top” for Bitcoin acceptance.
Florida’s Current Crypto Investments
Florida has already taken significant strides in the cryptocurrency arena, reportedly holding around $800 million in crypto-related investments.
Chief Financial Officer Jimmy Patronis has been outspoken about the necessity for the state to adapt to the future of cryptocurrencies. Patronis recently urged state pension fund managers to consider the possibility of incorporating Bitcoin into the state’s investment strategy.
Patronis contended that the expansion of cryptocurrency is inevitable. He mentioned to CNBC in October:
“Crypto’s not going anywhere. It’s going to continue to expand, and I think it would be unwise not to take every opportunity to benefit from it.”
These developments coincide with US President-elect Donald Trump’s commitment to Bitcoin and digital asset innovation, including intentions to maintain the U.S. government’s Bitcoin holdings.
In July 2024, Trump promised during the Bitcoin2024 conference that his administration would never sell the U.S. government’s Bitcoin assets, which presently exceed 212,000 BTC and are valued at around $20 billion.
Florida’s Crypto Investments
Florida has shown an ongoing interest in cryptocurrency and currently holds $800 million in crypto investments. CFO Jimmy Patronis has encouraged pension fund managers to explore the addition of Bitcoin to the state’s investment portfolio, underscoring the importance of preparing for the rise of digital currencies.
“Crypto’s not going anywhere. It will keep expanding, and we would be foolish not to take advantage of its opportunities,” stated Patronis.
Florida’s initiative aligns with a broader trend in the U.S. to incorporate Bitcoin within financial systems. President-elect Donald Trump has committed to retaining the U.S. government’s Bitcoin holdings, valued at about $20 billion, which demonstrates support for the cryptocurrency sector.
Florida’s intention to invest in Bitcoin has prompted some concerns. Detractors like Charles Bobrinskoy from Ariel Investments describe Bitcoin as a “momentum-driven bubble” and caution about its volatile nature and questionable value. Nevertheless, Florida is optimistic that Bitcoin can serve as a solid long-term investment and a more secure alternative to traditional financial risks.
Should Florida’s strategy succeed, it could establish the state as a frontrunner in the integration of digital assets in state investments. This could inspire other states to consider investing in Bitcoin as well.
Florida’s proposed $1.85 billion Bitcoin investment from its pension fund represents a significant advancement in state-level cryptocurrency adoption. Supported by substantial political backing, it signals a transition towards blockchain technology in governmental investments.
A UK pension scheme has been criticized as “deeply irresponsible” for its investment in Bitcoin. The unnamed defined-benefit pension plan became the first in the UK to invest in cryptocurrency, allocating 3% of its assets to the digital currency last month.
Pension consultancy Cartwright served as an advisor to the scheme, noting that the investment was a “strategic move that not only provides diversification but also taps into an asset class with a distinct asymmetric risk-return profile.”
It asserted that this strategy would allow the scheme to gain from a significant potential upside while restricting negative outcomes.
However, some experts are more skeptical about the choice, cautioning it verges on “gambling with retirees’ futures.”
“This is a very peculiar decision. Surely, pension funds should be investing with a long-term perspective rather than speculating on short-term gains,” said Colin Low, managing director at Kingsfleet, in an interview with Newspage.
“It is ironic that a pension fund, which typically has one of the longest investment horizons, is speculating its beneficiaries’ assets on something that lacks intrinsic value.”
Daniel Wiltshire, an actuary at Wiltshire Wealth, stated: “This is profoundly irresponsible. Pension trustees must ensure that scheme assets are managed prudently.”
“This excludes taking bets on a struggling asset class like crypto. For the sake of the members, I hope the regulator is paying close attention.”
What are the reasons behind such concerns?
Bitcoin is considered the largest and oldest cryptocurrency, although other cryptocurrencies like Ethereum, Tether, and Dogecoin have also gained traction in recent years.
Many investors view cryptocurrency as a “digital alternative” to conventional money, but it is characterized by significant volatility, with its price influenced by broader market trends.
Trustees of pension schemes usually prefer to avoid taking substantial risks with the funds of retirees.
The Financial Conduct Authority advises that “you should never invest money into crypto that you can’t afford to lose” and cautions individuals to be ready to lose all their investment.
Although a 3% allocation may seem small, it can substantially influence the pension fund’s performance.
This implies that if Bitcoin continues to rise sharply, it could considerably benefit the scheme; conversely, if it declines, it could severely affect the fund.
As a defined benefit scheme, the risk is shouldered by the employer if there aren’t enough assets to cover future pension payouts rather than by the scheme members.
Laith Khalaf, head of investment analysis at AJ Bell, notes that while many individuals have purchased crypto assets personally, justifying such investments as a means of diversifying a pension portfolio is more challenging.
“Although Bitcoin’s price is currently thriving, historically we’ve seen instances of strong performance followed by rapid price declines. This volatility itself presents a significant barrier to Bitcoin’s adoption by consumers and businesses as a payment method,” he explains.
“If you believe Bitcoin is the future of currency despite its volatility, consider whether you would accept payment from your employer or be billed by your mortgage lender in cryptocurrency.”
While it’s possible that Bitcoin may succeed and prove its critics wrong, there’s also the risk that it might eventually lose all its value.
Recently, it achieved a record high exceeding $99,000, but just under two years ago, it plummeted below $17,000 due to the collapse of the crypto exchange FTX.
Some experts contend that the potential rewards make investing in Bitcoin a worthwhile risk.
Chris Barry, a director at Thomas Legal, argues that anything less than a 5% investment is “reasonable,” suggesting that UK pension funds need to align more with their US counterparts that have been investing in cryptocurrency for years.
“Bitcoin has been the highest-performing asset class on average over the last decade, even surpassing the NASDAQ. The trend following Trump’s election victory in the US is indeed very positive,” he states.
David Belle, founder and trader at Fink Money, shares a similar perspective, asserting that a pension scheme portfolio fundamentally revolves around numbers aimed at achieving returns.
“A portfolio is primarily composed of different betas, assets that either outperform or underperform relative to a benchmark. Crypto can be a valuable asset class if it aligns with the risk appetite.”
A pension fund advisor has asserted that Bitcoin’s value could surpass that of the entire global economy.
Sam Roberts, who is the investment director at a British pension consulting firm that has invested pension fund assets into Bitcoin, stated that “the total market capitalization of Bitcoin might exceed $200 trillion (£158 trillion), significantly higher than its current market cap of $2 trillion [indicating considerable upward potential for the Bitcoin price],” in an article for Personal Pensions on Tuesday.
According to the International Monetary Fund (IMF), the global economy’s total output is approximately $110 trillion, implying that Mr. Roberts believes Bitcoin could exceed the existing global GDP by nearly 100 percent.
Cartwright has faced criticism for advising one unnamed pension fund client to allocate 3 percent of its assets into Bitcoin last month. The firm manages 150 defined benefit schemes and oversees a total of £5 billion in UK pension funds.
Its clients, who seek advice from the firm regarding part or all of their pension funds, include the retailer Carpetright and the Arab British Chamber of Commerce.
In the same article, Mr. Roberts likened skepticism towards Bitcoin to the initial backlash that online banking, e-commerce, Facebook, and online streaming encountered.
He stated: “Bitcoin has transitioned from a niche digital asset to a widely accepted investment, and ignoring it might prove detrimental. For pension funds, it presents an important opportunity to diversify portfolios and potentially secure higher returns.
“Allocating a small percentage (between 2 and 4 percent) to this potential upside offers a long-term asymmetric opportunity.”
Experts have cautioned that Cartwright’s decision has exposed pension funds to Bitcoin’s “well-known volatility.” The cryptocurrency’s price, which recently exceeded $100,000 for the first time, has risen approximately 500 percent since November 2022. However, investors who bought the asset in October 2021 experienced a decline in value from around $65,000 to below $16,000 within just over a year, resulting in a 75 percent loss.
While a 3 percent investment in the asset is unlikely to lead to a pension fund’s failure, a significant downturn in cryptocurrency value could still affect retirement savings.
Laith Khalaf, who is the head of investment analysis at AJ Bell, remarked: “Bitcoin is notoriously unpredictable, and pension scheme trustees are typically very risk-averse. Why would they not be when they are responsible for other people’s retirement funds?
“The Financial Conduct Authority suggests that anyone investing in Bitcoin should only do so with money they can afford to lose entirely. That does not seem like a suitable tagline for something that should fit comfortably into a pension scheme managed on behalf of members.
“Any forecasts regarding the future size of the Bitcoin market should be viewed with considerable skepticism. E-commerce serves as an interesting example of a successful breakout trend, as the concept has proven to be highly profitable, but numerous first-wave companies from the nineties eventually went out of business.”
Darius McDermott, who is the managing director of broker Chelsea Financial Services, indicated that some exposure to Bitcoin might be beneficial, particularly in light of the American election, given Donald Trump’s vocal support for cryptocurrency.
Mr. McDermott noted: “The newly elected US administration seems very supportive of crypto, and they recently appointed Paul Atkins as the new Securities Exchange Commission chairman, who is a well-known cryptocurrency advocate.
“Crypto can provide diversification to a portfolio and has significant potential upside. However, I would be cautious in taking a large position, especially given that it has risen 50 percent in the past month.”
A representative for Cartwright stated, “We evaluate the potential in relation to the value of global assets instead of considering GDP (which reflects annual wealth creation, not cumulative wealth).
“McKinsey estimated in 2021 that the total value of global assets in 2020 was $1,540 trillion, and that number has likely increased since then. If Bitcoin succeeds, then predicting a 13 percent share of total global assets could be conservative, given its unique properties.”