This election cycle saw a sharp increase in political spending from cryptocurrency companies, positioning the industry to influence U.S. politics. Already several states have begun exploring the creation of strategic Bitcoin reserves. As Bitcoin becomes more institutionalized, its adoption by state treasuries is seen as a victory for the crypto sector.
However, this trend raises concerns about the future rights of Bitcoin holders, as greater government oversight and institutional involvement could transform Bitcoin from the cypherpunk’s dream of decentralized, peer-to-peer currency into just another financial asset.
In the 2024 election cycle, cryptocurrency corporations have spent over $119 million to influence federal elections, with nearly half of all corporate political donations this year coming from the crypto sector. These funds have been channeled primarily into a non-partisan super PAC, Fairshake, which supports pro-crypto candidates and opposes crypto skeptics. Crypto companies are now the largest corporate political spenders, surpassing even Koch Industries, which has contributed significantly but remains far behind in comparison. Since the 2010 Citizens United ruling, crypto corporations have spent $129 million, making them the second-largest corporate election spenders after fossil fuel companies. This unprecedented level of spending reflects the industry’s push to shape regulations in its favor.
With the election over, there is an anticipated push for states to adopt more crypto-friendly policies, including allowing public pension funds and treasuries to invest in Bitcoin. Some state pension funds such as Wisconsin and Michigan have already added Bitcoin ETFs to their portfolios. In November, Representative Mike Cabell introduced the Pennsylvania Bitcoin Strategic Reserve Act, proposing that the state treasurer allocate up to 10% of Pennsylvania’s General Fund, Rainy Day Fund, and State Investment Fund into Bitcoin. Following this in December, Texas Representative Giovanni Capriglione proposed a bill for a strategic Bitcoin reserve to be held for at least five years in a cold wallet and in Ohio Representative Derek Merrin has a bill for the creation of a Bitcoin fund in the state Treasury and grants the state Treasurer with discretionary power to purchase Bitcoin.
Meanwhile, some U.S. states have taken the lead in cryptocurrency and blockchain regulation. Arizona has considered legislation to define Bitcoin as legal tender and permit state agencies to accept cryptocurrency payments. Oklahoma has enacted laws affirming rights to self-custody cryptocurrencies and engage in digital asset mining. Pennsylvania’s House passed a bill securing rights to self-custody digital assets and conduct cryptocurrency transactions and Louisiana now has provisions for node operation and home digital asset mining. Recently eighteen U.S. states also filed a lawsuit against the Securities and Exchange Commission (SEC), seeking to halt its enforcement actions on cryptocurrency regulation. The states argue that the SEC is overstepping its authority by attempting to regulate digital assets without explicit Congressional approval. They contend that such regulatory power should reside with individual states. It is unknown if the courts will be favorable to this legal argument.
At the federal level, meanwhile, regulatory clarity is still sadly lacking, and Bitcoin’s classification as a commodity rather than legal tender adds further complexity to the regulatory framework. This year the CFTC and SEC have intensified their enforcement actions against cryptocurrency firms continuing an aggressive regulatory approach. Recent legal actions against Tornado Cash and Samourai Wallet show the federal government’s concerns with digital assets, such as peer-to-peer transactions and “unhosted” wallets bypassing traditional financial oversight, creating a challenge for AML/CFT (Anti-Money Laundering / Countering The Financing Of Terrorism) enforcement, especially when paired with anonymity-enhancing tools like mixers. While some states have been favorable towards Bitcoin, most have no policy and have just applied existing money transmission laws to virtual currencies, requiring businesses dealing with cryptocurrencies to obtain money transmitter licenses. Without federal clarity Bitcoin and cryptocurrency companies wishing to serve the US market have to navigate a patchwork of different laws across all 50 states, keeping out all except only the most well financed operations.
State level investment marks a significant shift from Bitcoin’s origins when it emerged as an alternative to the traditional financial system. Governments and regulators voiced concerns focused on money laundering, tax evasion, and criminal use. Bitcoiners have cheered on the rise of state and corporate strategic bitcoin reserves, but treasury adoption does not necessarily lead to greater rights for holders of bitcoin. Just because governments hold Bitcoin, does not mean that they will suddenly be okay with everyone else holding it or decide to give up the power of the fiat printer. If political priorities follow funding, the crypto sector’s primary goal this year appears to be influencing state pension funds and establishing strategic Bitcoin reserves, instead of getting written into law rights to self custody or greater privacy.
The strategic reserve push marks a clear shift from Bitcoin’s anti-establishment origins as a peer-to-peer currency without intermediaries, pushing it toward becoming solely a treasury asset. Currencies do not need third parties, you exchange the currency for the goods and services you want directly. Assets, on the other hand, typically demand third parties. In order to obtain the good or service you must sell the asset for the currency, borrow against the asset, or lend out the asset for a yield. There are tax professionals needed to report the gains and losses, accountants to track the asset and its derivatives, lawyers to draw up the contracts, police and regulators to enforce the contracts, banks to issue, hold, and control the currency, and as always politicians to write the laws and regulations that decide the winners and losers.
Bitcoin as a treasury asset poses no threat to the establishment. It only reinforces the existing system and rewards Bitcoin holders with rising prices. As a treasury asset, Bitcoin is no different from gold, pork bellies, or mortgage-backed securities; just another commodity to be endlessly packaged, derived, and traded. On the other hand, Bitcoin as freedom money that can be held privately and transacted without permission challenges the status quo and can be a powerful tool for financial equality. It empowers the individual over the group, levels the playing field for those excluded from the current financial system, protects people from the robbery of inflation, and actually allows market forces to determine winners and losers. Digital gold stored in secure vaults with financial oversight would address the federal government’s concerns about Bitcoin, which would both legitimize it and encourage institutional adoption, but rising prices might blind people to what they would lose in the process if Bitcoin continues to follow this path…
This is a guest post by Will Jager. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.