State-Level Bitcoin Reserves Are Here. Here's What You Need to Know.

The state of New Hampshire signed a bill into law on May 6 that enables its state treasury to invest in digital assets like Bitcoin (CRYPTO: BTC). Arizona followed suit by signing a slightly different bill of its own into law on May 7. Now, there's yet another set of policy catalysts from which the digital coin's holders can benefit.

Much like the federal government's Strategic Bitcoin Reserve (SBR), neither of these state-level reserves has been implemented as of yet. If they are, they could directly impact the coin's pricing and supply dynamics.

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Let's dive in and examine what these bills aim to do and why they matter.

State reserve bills differ from the federal policy

The first thing to appreciate about the proposed state-level Bitcoin reserve policies is that they differ significantly from each other, as well as from the federal government's SBR.

For instance, New Hampshire's new law allows its state treasurer to use public funds to invest in precious metals like gold, silver, or platinum. It also opens the door to buying cryptocurrencies or "any digital asset with a market capitalization of over $500 billion," which may enable the holding of stablecoins as well. Right now, only Bitcoin fulfills the market cap criteria, but that could change in the future.

Arizona's new law takes a different approach, redirecting the proceeds from unclaimed property into Bitcoin and "top-tier digital assets." There's no indication that public funds can or will be allocated to buying such assets, or that seized coins will be retained rather than sold. That strategy will likely result in far less upward price pressure on the coin, but other states are evaluating other paths that might be more impactful.

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The bill under consideration in Texas requires that the reserve be filled with funds appropriated by the legislature. North Carolina's proposed bill calls both for holding on to seized digital assets and for potentially investing in them using state pension funds, but this bill doesn't mention Bitcoin specifically.

Votes for these bills are coming up in the next few months, though it's important to note that some attempts, like Montana's, have already been voted down. Other states have seen their crypto reserve bills vetoed by the governor in question.

In contrast to these proposed policies, the federal SBR does not allow for direct investment of public funds into Bitcoin or other cryptocurrencies in any way that would increase the size of the budget. However, it does mandate the retention of all of those assets if the government comes into possession of them via asset forfeitures.

From an investment standpoint, these different policies are likely to have somewhat different strengths in terms of their effect on Bitcoin. Opting to retain seized assets takes a supply of the coin off the market, at least until state governments opt to spend it. That could increase the asset's price by reducing the outstanding float of supply. On the other hand, the states that are planning to directly invest public funds into Bitcoin have far more bullish implications for its price.

Either way, there is no way to interpret the swath of new policies under consideration as being bearish for Bitcoin in any way. While states may not necessarily be as dedicated to holding the coin for the long term as the federal government claims it will be if it implements the SBR, they'll still be more reliable holders than flighty investors, who can often be scared into selling based on poor market sentiment.

Expect more policies to come

New Hampshire and Arizona are just the first couple of states to pass a digital asset reserve bill of some kind. Dozens of others are currently evaluating policies or voting on related bills. Some have already made more than one attempt at getting bills through the local legislature or past the governor's veto. These attempts will probably continue through the rest of the year, and perhaps beyond.

The immediate price impacts on Bitcoin itself will be insignificant at best.

Over the long term, however, the effect of having more competition for supply, and of having more of the supply held in storage rather than being available for sale, may become significant. State budgets are similar in size to those of many institutional investors, which means that they can bring real capital to bear when they're allowed to. And there isn't much that's a bigger validation of an asset's value and long-term viability than if both the state and the federal government are going out of their way to hold onto it.

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Alex Carchidi has positions in Bitcoin. The Motley Fool has positions in and recommends Bitcoin. The Motley Fool has a disclosure policy.