Speculators worldwide have gone gaga over Bitcoin, the progenitor of numerous cryptocurrencies that has rocketed in price over recent years. From a value near zero when launched in 2009, Bitcoin has traded briefly at over $40,000 per coin in what has quickly exploded to become a trillion-dollar global cryptocurrency market. Several prominent and even institutional investors have joined the craze.
Normally, prudent pension trustees would steer clear of such high flyers as unduly speculative, but what if their cost as founders was zero? What if states, acting together shrewdly, were to pop up their own cryptocurrency to compete with Bitcoin and its crypto-copycats? Public finance and pension professionals might give a serious look at whether there could be a hidden treasure for taxpayers in the scenario presented below — a “straw man” proposal intended to generate exploratory professional and policy discussions.
There’s nothing new about public-sector involvement with cryptocurrency. In 2018, for example, Governing reported on Berkeley, Calif.’s plan to issue bonds using the blockchain technology that underlies cryptocurrency. Consultants at Deloitte published a paper on state-sponsored cryptocurrencies. Ohio experimented briefly with Bitcoin for tax payments. And two Virginia public pension funds have invested in a blockchain venture empowered to own crypto.
Before getting into the larger picture of how states and pension funds might profit from cryptocurrencies, though, a primer on the subject: Central banks globally have been monetizing national debt — creating new