Bill To Create Texas Bitcoin Reserve Filed Despite Risks

State Senator Charles Schwertner (R-Bryan) has filed a bill with the Texas Legislature to enable the state to buy a strategic reserve of the digital cryptocurrency Bitcoin, but it’s unclear if it is a wise move.

“It’s time for Texas to lead the way in establishing a Strategic Bitcoin Reserve,” Schwertner tweeted on Wednesday. “That’s why I filed SB 778, which, if passed and signed into law, would make Texas the first state in the nation to establish a Strategic Bitcoin Reserve. This would position our state at the forefront of the digital economy, driving growth and securing economic freedom for our great state! #txlege”

Senate Bill 778 would allow the state to spend up to 1% of unencumbered and unexpended balance of the general revenue fund for any biennial cycle to hold in cold storage as a commodity. Bitcoin must be acquired from sources within the state of Texas, and use of the funds would require a two-thirds majority of both chambers to approve.

One critic of the plan is Ed Hirs, an energy economics fellow at the University of Houston. He responded to Schwertner’s tweet.

“Cryptocurrencies facilitate tax evasion and money laundering—a boon for human trafficking and drug trafficking. It makes the job of the @TxDPS  harder everyday.”

Hirs’ response was quickly shouted down by crypto enthusiasts. They tend to make up a large portion of users on X (formerly Twitter), which is owned by crypto proponent Elon Musk.

But Hirs is correct that crypto has been used in human trafficking and other crimes. The U.S. Government Accountability Office said in a 2022 blog that government agencies have seized millions from human and drug traffickers that use crypto. Human Trafficking Front, a non-profit that works to combat human trafficking, calls cryptocurrency the fastest-growing method of purchasing child sex abuse material. The state of Texas buying a large amount of locally owned crypto will possibly be putting a lot of money in the pockets of criminals.

The question of whether having a cryptocurrency strategic reserve is a good idea is still very much open. In practice, cryptocurrency is just another commodity, no different than oil or gold. Since Bitcoin’s introduction in 2009, it has grown from being worth less than a cent to over $100,000, though the price has fallen since its recent peak.

The problem with Bitcoin is that unlike other commodities, it has no intrinsic worth. As a virtual currency, it is merely another type of dollar, and one that is not subject to the many controls and securities that are the hallmark of official hard currency.

This can lead to large fluctuations in the market based around, for want of a better term, vibes. The price of Bitcoin tends to rise regardless of normal trends like scarcity. One bad tweet from the right person can tank the worth of cryptocurrency overnight, leaving Texas with a giant hole in its digital wallet.