Bitcoin is becoming a recognized reserve asset in the US, with several states seeking legislation to include it in their financial policies. This trend has spurred speculation of a global race to amass Bitcoin as early adopters strive to capitalize on its advantages.
Kentucky has become the latest state to propose legislation allowing up to 10% of extra state funds to be allocated to Bitcoin. If passed, this plan could act as a catalyst for wider adoption, encouraging other governments to follow suit. Industry analysts predict that the official inclusion of Bitcoin in a state’s reserves could trigger a domino effect.
Institutional use of Bitcoin is also increasing, with huge asset management firms owning significant amounts of the cryptocurrency. U.S. spot Bitcoin exchange-traded funds (ETFs) have acquired more than 5.91% of the total Bitcoin supply, worth more than $113 billion. BlackRock’s Bitcoin ETF alone is responsible for roughly half of these holdings. As more institutions and governments acquire Bitcoin, its standing as a mainstream reserve asset solidifies.
Challenges and considerations
Despite the rising attention, a number of problems persist. Regulatory considerations and Bitcoin’s price volatility provide challenges for legislatures considering these reserve plans. Some jurisdictions have proposed structured holding periods, such as Illinois’ five-year Bitcoin reserve plan, to help minimize short-term market swings.
Furthermore, government conversations about Bitcoin reserves are beginning, with politicians debating the long-term ramifications of state-backed cryptocurrency holdings. Some MPs have even proposed a national Bitcoin reserve policy, which could significantly alter the financial environment.
