The debate over whether to inject a dose of cryptocurrency into the traditionally conservative world of state pension funds has reached a fever pitch in North Carolina. While some lawmakers champion the potential for high returns by venturing into the digital asset market, others are pumping the brakes, expressing serious concerns about the inherent volatility and risks associated with Bitcoin and other cryptocurrencies. This tug-of-war highlights a broader national conversation about the role of digital assets in public finance, with North Carolina emerging as a key battleground.
Recent weeks have seen a flurry of legislative activity in the Tar Heel State, with several bills introduced aiming to modernize the state’s investment strategies. Among these proposals are measures that would allow a portion of North Carolina’s $127 billion state pension fund to be invested in digital assets. State Treasurer Brad Briner, a Republican in his first term, has publicly stated the need to diversify the fund’s investments to achieve a benchmark annual return of 6.5%. He believes that exploring asset classes beyond traditional stocks and bonds is crucial for the financial security of the state’s retirees.
“The challenge in the pension fund is very clearly the investment side,” Treasurer Briner told the House Oversight Committee recently. He emphasized that the state has consistently made its required contributions to the fund, but investment performance needs improvement. Briner proposed the “State Investment Modernization Act,” which seeks to create the North Carolina Investment Authority, a five-member board that would oversee investment decisions, including potential allocations to digital assets.
Under Briner’s proposal, the newly formed Investment Authority could allocate up to 5% of the state’s retirement fund to digital assets like cryptocurrencies, stablecoins, and non-fungible tokens (NFTs). This move would require the General Assembly to lift existing restrictions on the types of assets the pension fund can invest in. Briner argues that these restrictions, some dating back over a decade, limit the fund’s ability to capitalize on new investment opportunities. “Cryptocurrencies did not exist a decade ago, and certainly zero interest rate fixed income was not interesting a decade ago,” he pointed out.
However, this push towards cryptocurrency investment has met with significant skepticism from some lawmakers. They voice worries about the extreme price swings characteristic of the cryptocurrency market. Bitcoin, for instance, while offering the potential for significant gains, has also experienced dramatic drops in value, raising questions about its suitability for safeguarding the retirement savings of public employees.
Representative Maria Cervania, a Democrat from Wake County, expressed her reservations during a committee hearing. “I invest in gold, and if I was going to get a payback I could actually receive that gold bar of like $400,000. But I can’t get anything back from Bitcoin that’s tangible,” she questioned, highlighting the intangible nature of digital assets.
Treasurer Briner responded by comparing a crypto wallet to a digital bank ledger, asserting that its value lies in the collective belief and promise behind it, similar to traditional currency. While acknowledging the volatility of cryptocurrencies, he suggested that a “very modest proportion” of the pension fund could potentially be allocated to them over time. However, he also cautioned that he is “not sure what that role is at the immediate moment,” indicating a cautious approach.
The proposed legislation doesn’t mandate a specific investment in Bitcoin or any other digital asset. Instead, it aims to create a framework that would allow the Investment Authority to carefully evaluate the risks and potential rewards of each digital asset before making any investment decisions. The bills also stipulate that any digital assets acquired must be held in secure custody solutions to protect against cyber threats and theft.
Adding another layer to the discussion, a separate bill titled the “Bitcoin Reserve and Investment Act” (Senate Bill 327) has also been introduced by Republican Senators Todd Johnson, Brad Overcash, and Timothy Moffitt. This bill proposes a more direct approach, suggesting that the state treasurer could invest up to 10% of public funds specifically in Bitcoin. Proponents argue that this could serve as a “financial innovation strategy” to bolster North Carolina’s economy. This bill also includes provisions for storing the Bitcoin in a multi-signature cold storage wallet and would require a two-thirds approval from the General Assembly to sell the Bitcoin, except during a “severe financial crisis.”
The introduction of these bills reflects a growing national trend, with several other states also considering or actively exploring investments in cryptocurrencies. However, the scale and scope of these proposals vary significantly. Some states are focusing on creating Bitcoin reserves, while others are considering broader investments in various digital assets within their pension funds.
For North Carolina’s public employees, including teachers, firefighters, and state troopers, the prospect of their retirement funds being exposed to the volatile cryptocurrency market evokes a range of emotions. Some may be excited by the potential for higher returns, while others are understandably anxious about the risks involved. The debate taps into fundamental questions about the security and stability of their future financial well-being.
The coming weeks and months will be crucial as North Carolina lawmakers deliberate on these proposals. The House and Senate will likely hold further committee hearings and debates to thoroughly examine the potential benefits and drawbacks of investing state pension funds in Bitcoin and other digital assets. The outcome of these discussions will not only shape the future of North Carolina’s pension system but could also set a precedent for other states grappling with similar decisions.
For now, North Carolina’s lawmakers appear to be proceeding with caution, carefully weighing the allure of potential high returns against the fiduciary responsibility of safeguarding the retirement savings of their public servants. The decision on whether to embrace the world of cryptocurrency or stick to more traditional investments will have significant implications for the financial future of countless North Carolinians.
