If the R.I. State Investment Commission, which manages the state’s $11 billion public retirement system, had a crystal ball in 2019, it could have invested in bitcoin and enjoyed a 300% return in 2020 and another doubling up by early 2021.
But if it stayed in any longer, the initial investment would have mostly evaporated.
Proponents of the volatile cryptocurrency argue that increased government investment could stabilize bitcoin’s price swings. Now, they may get their wish as the bitcoin-friendly administration of President-elect Donald Trump and an expanding lobbying effort in statehouses could push states to become more open to crypto and for public pension funds and treasuries to buy into it.
In fact, that outlook pushed the price of 1 bitcoin past $100,000 in early December, a record high.
Also fueling the speculation is the U.S. Securities and Exchange Commission’s decision a year ago to greenlight the first exchange-traded funds, which let investors gain exposure to bitcoin in traditional financial markets rather than owning it directly on a cryptocurrency exchange.
From allowing cryptocurrency payments to parking public pension funds in digital assets, several states have increased their faith that the blockchain can shore up portfolios.
Will Rhode Island follow?
The first was the State of Wisconsin Investment Board, which purchased $160 million worth of shares in two exchange-traded funds. Michigan’s treasury is in for about $18 million in a bitcoin exchange-traded fund, and at least 10 other states are introducing legislation to establish a cryptocurrency reserve, according to media reports.
In Virginia, the Fairfax County Police Officers and Employees Retirement Systems invested in a blockchain-dedicated fund between 2018 and 2019 and have seen returns increase tenfold. More recently, Jimmy Patronis, Florida’s chief financial officer, called on pension managers to add cryptocurrencies to the state’s holdings and “prioritize the bottom line.”
In 2017, California’s public retirement system took a relatively small stake in Riot Blockchain that grew to over $1.9 million by late 2020 and hit $5.4 million before the system exited its position in 2021.
Still, the national trend shouldn’t persuade Rhode Island to jump to cryptocurrency investments, says Doug Berge, a director with Veribanc Inc., a research firm that provides risk analysis and bank ratings on all U.S. federally insured financial institutions.
“I have a fundamental problem with digital money of any kind because it’s too easily manipulated,” he said. “Markets and industries are already manipulated and inflated to where values are terribly distorted.”
Some Rhode Island legislators want to get the full picture before any cryptocurrency commitment.
Sen Louis P. DiPalma, D-Middletown, thinks the state should tread lightly – if at all – into cryptocurrency, which he called “speculative at best.
“We are dealing with pensioners’ money,” he said, although he acknowledged that “it’s a little less speculative when you are in an exchange-traded fund.
“Everyone is getting excited and jazzed up about how well the various cryptocurrencies are doing,” he said. “But will they stay there? Nobody knows.”
State legislatures often fail to keep up with technological acceleration happening in the private sector, says DiPalma, who in December attended a National Council of State Legislators event where the topic of cryptocurrencies was at the forefront.
Last year, DiPalma co-sponsored a joint resolution that would have created a five-member special legislative commission to study blockchain and cryptocurrency to produce legislative proposals and a final report by January 2026. The bill died in committee.
“It’s happening now,” he said. “We need to ensure legislators are aware and educated on what they want to see. Otherwise, they are going to have constituents and advocates coming up to them saying, ‘We want you to do this, and we want you to do that.’ And they’ll be replying, ‘You want us to do what?’ ”
A spokesperson for R.I. General Treasurer James A. Diossa declined to discuss whether the office has explored adding cryptocurrencies to the state’s investment portfolio, which achieved a 10.5% return last fiscal year, surpassing its own benchmark and well exceeding its 7% target annual rate.
But the state pension system hasn’t been completely out of the loop.
The most recent Employees’ Retirement System of Rhode Island monthly report through Nov. 30 shows the system has investments in funds that have holdings in cryptocurrencies.
For instance, ERSRI has holdings valued at $87.9 million in Aristeia Partners LP, which has a $163.4 million investment in BlackRock’s iShares Bitcoin Trust exchange-traded fund. Another $189.6 million is parked with D.E. Shaw, a hedge fund with close to $200 million worth of note holdings for the cryptocurrency exchange Coinbase.
Indeed, even The Bank of New York Mellon Corp., which advises the State Investment Commission, recently obtained a “no-objection” from the U.S. Securities and Exchange Commission to begin offering digital assets such as bitcoin and ethereum without classifying them as balance-sheet liabilities.
But these large banks and hedge funds need to keep an array of financial products to attract customers, many of which may not be advisable for long-term and traditionally conservative public pension funds.
Berge predicted some state systems may learn this lesson soon.
“When this thing corrects next year,” he said, “many will be in for a difficult ride.”
With reports from The Associated Press.
