States edging into crypto

The Securities and Exchange Commission, once considered the bane of digital currency proponents, has changed course on a fundamental question defining the regulation of cryptocurrency.

"Our interpretation?grounded in existing law and informed by extensive public input?establishes four asset categories that are not deemed securities," said SEC Chairman Paul Atkins.

His comments came in conjunction with a public address to crypto advocates in Washington D.C. last month and the release of a 68-page rule interpretation from the SEC.

The SEC's new position reverses former Chairman Gary Gensler's views that most forms of cryptocurrency are securities and should be subject to the same rules and regulations as stocks and bonds.

Both arguments hinge on the interpretation of what's known as the "Howey Test," a 1946 Supreme Court ruling that attempts to define a legal standard for investment contracts.

Public finance participants are interested in crypto as an investment tool, with the state of New Hampshire leading the way.

Announced last December, the state's conduit issuer, the Business Finance Authority, intends to sell $100 million of taxable bitcoin-backed revenue bonds.

The sale took a step forward yesterday as Moody's Ratings assigned provisional ratings for the bonds at Ba2, landing them in junk territory.

According to the National Conference of State Legislatures, "at least 40 states have introduced or have pending legislation regarding cryptocurrency, digital or virtual currencies and other digital assets in the 2025 legislative session."

According to Pew, "at least 19 states considered or passed legislation that would allow a portion of state funds to be invested in digital assets or related investment products."

Texas became the first state to buy into digital with a $5 million investment into a bitcoin exchange fund in December of last year. The buy will establish a bitcoin reserve fund for the state.

Over a five-year period, the price of bitcoin has varied from lows in the $16,000's to highs over $100,000 per coin. It's currently trading in the high $60,000's.

Putting state money into speculative investments puts taxpayers at higher risk as compared to A-rated municipal bonds.

Pew's analysis includes insight into how some state policies are moving to reduce risk while still cashing in on what could be valuable investments.

Per Pew, "To reduce risk, proposals have included limits such as capping the percentage invested to 5% or 10% of public funds or instituting a requirement for a high market capitalization threshold for qualified digital assets."

Concerns remain about policies that don't prevent mixing reserve funds with crypto.

"Few of the proposals would limit the types of public funds that can hold cryptocurrency, leaving the door open for stabilization accounts like rainy day funds or budget reserves to include the volatile asset class," said Pew.

Some states have also expressed interest in investing public pension dollars into crypto as a hedge against downturns in traditional securities.

According to NCSL, Indiana's Hoosier START pension plan "shall offer, as a regular investment program, a self-directed brokerage account that offers at least one cryptocurrency investment option."