The fine print on the crypto ‘reserves’ of New Hampshire and Arizona
A cursory read of headlines this week has led some crypto investors to cheer the historic creation of digital asset reserve funds by two states.
Governors of New Hampshire and Arizona have signed bills that created what seemed to be the first two digital asset reserves in US state history.
However, a closer review of those reserves reveals a substantial difference between their actual text and social media posts about them.
Consider Arizona’s newly signed law authorizing the creation of a “bitcoin (BTC) and digital assets reserve fund.” Although a fund is, indeed, now authorized by law, Arizona will not be making any crypto purchases.
Instead, the state may only add seized assets from civil and criminal legal proceedings to its so-called Bitcoin Reserve Fund.
According to Arizona’s newly-revised Section 44-302 statute, the state now defines certain types of property, like checks, annuities, certificates of deposit, and digital assets, as “presumed abandoned” if they are lawfully in the possession of the state and their owner doesn’t claim them for three years.
Subject to a variety of conditions, the state may thereafter assume ownership of such “abandoned property” like digital assets, and add these assets to its so-called “digital assets reserve fund.”
In other words, Arizona has simply defined the conditions under which it may overtake ownership of other people’s property, including digital assets.
It will not be buying any digital assets under this law.
The fine print on crypto reserve funds
On the other hand, New Hampshire’s new law received thousands of likes and shares on social media earlier this week on the promise that the state would become the first state to “invest” in cryptocurrency.
Few noticed the purposeful, singular tense of the word cryptocurrency.
Indeed, buried in the law in paragraph II, a provision prohibits the state treasurer from investing any public funds in any digital asset with a market capitalization below $500 billion averaged over the previous calendar year.
Stablecoins are also exempted from this market cap minimum.
Only one digital asset has a market capitalization of over $500 billion: bitcoin.
Read more: Trump’s Strategic Bitcoin Reserve audit is now five days overdue
Therefore, despite the law’s creation of a digital asset reserve, the only digital asset investments allowed by law currently are stablecoins — which shouldn’t increase in value, by definition, and are therefore not meaningful investments — and BTC.
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