In the first part of the draft, lawmakers clearly state that inflation has severely eroded the purchasing power of state finances and retirement funds, affecting the economic well-being of residents. While state governments cannot control federal monetary supply and macroeconomic policies, they have a responsibility to protect the financial health of the state.

Written by: AY FundInsight

At the intersection of the cryptocurrency and traditional finance worlds, a new legislative proposal is sparking widespread discussion. The draft, titled the "2025 Bitcoin Strategic Reserve Act," was drafted by the Bitcoin advocacy organization Satoshi Action Fund, aiming to incorporate Bitcoin as a strategic reserve tool into the financial systems of U.S. states. This is not only an unprecedented attempt but also a bold step taken against the backdrop of increasing global economic uncertainty to combat inflation and enhance financial resilience.

I. Bitcoin: The New "Gold" for State Governments?

With the rise of Trump, Aiying's previous article introduced A Detailed Explanation of the "U.S. Bitcoin Strategic Reserve Act": Purchasing 200,000 Bitcoins Annually, Reaching 1 Million in Five Years**, *bringing it closer to reality, and even proposed the* "2025 Bitcoin Strategic Reserve Act," which aims to authorize state financial officials to incorporate Bitcoin into financial reserves to guard against asset depreciation caused by inflation.**

Of course, Aiying reviews the significant strategic purchases in U.S. history, such as the acquisition of Manhattan, the Louisiana Purchase, and the 19th-century purchases of California and Alaska, which brought trillions of dollars in returns to the U.S. These acquisitions initially seemed risky but ultimately proved to be a tremendous contribution to the U.S. economy and strategic position.

The same logic can be applied to today's potential procurement of Bitcoin. As a forward-looking strategic asset, Bitcoin possesses scarcity and long-term appreciation potential similar to those historically significant resources. Historically, the U.S. expanded its territory, economic base, and strategic security through the purchase of land and resources. Today, Bitcoin, as a strategic asset of the digital age, shares characteristics similar to traditional resources like gold and oil. By purchasing Bitcoin and incorporating it into state financial reserves, the U.S. can continue this historically successful experience and extend its financial dominance into the new era of the digital economy.

In the first part of the "2025 Bitcoin Strategic Reserve Act," lawmakers clearly state that inflation has severely eroded the purchasing power of state finances and retirement funds, affecting the economic well-being of residents. While state governments cannot control federal monetary supply and macroeconomic policies, they have a responsibility to protect the financial health of the state. Therefore, Bitcoin, as an anti-inflation asset, has been placed on the agenda. Data shows that Bitcoin's market value has skyrocketed over the past 16 years, now exceeding $1 trillion, which undoubtedly proves its potential in combating inflation.

II. Resilience and Innovation: What is the Intention Behind the New Legislation?

In the draft, state governments plan to legislate to allow Bitcoin and other digital assets to be included in the state financial investment portfolio as a means to respond to inflation and economic uncertainty. The core goals of the legislation are:

• To protect the purchasing power of state finances and prevent asset depreciation due to inflation.
• To respond quickly to market changes through flexible investment policies and enhance returns.
• To ensure that investment strategies align with the goals of enhancing state economic security and financial resilience.

The bill particularly emphasizes flexibility. In an increasingly complex and rapidly changing global economy, traditional investment models often appear too rigid, while the introduction of digital assets like Bitcoin provides a more diverse range of options for investment portfolios, enabling state governments to better manage market risks.

III. Secure Custody: Safeguards for Digital Assets

Regarding the holding and management of digital assets, the draft imposes strict security requirements. Specifically, the custody methods for Bitcoin include three options: direct holding by the state treasury, holding through qualified custodians, or holding through registered exchange-traded products (ETPs). Additionally, to ensure the security of digital assets, the draft proposes a "Secure Custody Solution"—requiring that private keys be controlled solely by the government and stored in an encrypted environment, with measures such as geographically dispersed data centers and multi-party governance structures to safeguard asset security. This aims to eliminate public concerns about the security of digital assets and ensure the safety and stability of digital assets in custody and management.

Specifically, the "Secure Custody Solution" includes the following measures:

• Exclusive Control of Private Keys: Encrypted private keys must be held by government entities and can only be accessed in an end-to-end encrypted environment.
• Geographically Dispersed Data Centers: The hardware devices for private keys must be stored in at least two geographically dispersed secure data centers to prevent risks from single-point failures.
• Multi-Party Governance Structure: Authorization for each transaction must go through a multi-party governance structure to ensure that all transactions undergo strict approval and recording.
• Disaster Recovery Mechanism: Custody service providers must have a comprehensive disaster recovery mechanism to ensure that the state government can still access and manage assets if the provider is unable to perform its duties.
• Regular Code Audits: Custody solutions must undergo regular code audits and penetration testing by auditing firms, with timely fixes for any identified vulnerabilities.

IV. Bitcoin Taxation: A New Source of Funding for Public Services?

The fifth part of the bill addresses the payment methods for taxes and fees. According to the draft, taxes paid in Bitcoin will be transferred to the state's general fund, while the state fund will compensate the corresponding digital asset accounts in U.S. dollars. This arrangement not only ensures the flexible use of funds but also signifies a significant increase in the acceptance of Bitcoin at the state level.

Specifically, the process for paying taxes with Bitcoin is as follows:

• Tax Payment: Taxpayers can use Bitcoin to pay taxes, and these Bitcoins will first enter the state's general fund account.
• Fund Conversion: The state general fund will compensate the designated digital asset account with an equivalent amount in U.S. dollars to ensure financial balance.
• Transparent Management: Through blockchain technology, the inflow and outflow of Bitcoin will be made public and transparent, reducing the risk of corruption and misuse of funds.

Additionally, the draft also allows state retirement funds to invest in registered digital asset exchange products, further enriching investment channels. These measures indicate that Bitcoin is not only a tool for combating inflation but may also become part of the funding sources for public services, gradually integrating into people's daily lives.

V. Behind the Legislation: An Experiment in Financial Innovation

The "2025 Bitcoin Strategic Reserve Act" is undoubtedly an unprecedented attempt and a microcosm of the modernization of the financial system. With Pennsylvania passing the "Bitcoin Rights" bill, the introduction of this strategic reserve act seems logical and far-reaching. Satoshi Action Fund, as an advocate for Bitcoin, aims to promote the application of Bitcoin in broader fields through such legislation, providing lawmakers with a perspective to understand blockchain technology and helping them seize opportunities in policy-making in the digital age.

Of course, to address the risks associated with the volatility of Bitcoin, the draft proposes several risk control measures:

• Investment Cap: The proportion of state treasury investment in Bitcoin must not exceed 10% of the total amount of the relevant fund to prevent over-reliance on a single asset.
• Asset Lending: Without increasing financial risk, the state treasury can obtain additional income by lending Bitcoin, but must adhere to the rules set by state financial officials.
• Diversified Investment Strategy: Encourage state governments to continue investing in other traditional financial assets while introducing Bitcoin to ensure the stability of the overall investment portfolio.

Whether this proposal can be widely accepted and implemented remains to be discussed and evaluated by state governments and the public. However, it is undeniable that the idea is quite worth referencing.

In summary, the "2025 Bitcoin Strategic Reserve Act" is ambitious, attempting to enhance the resilience and flexibility of public funds by incorporating Bitcoin, this emerging digital asset, into the state financial system. Behind the legislation lies an urgent need to promote financial modernization and a cautious prevention of emerging risks. Whether this experiment can succeed and provide a new paradigm for future government investment and financial innovation remains to be seen. Aiying FundInsight will continue to support Web3 and traditional financial institutions, helping them navigate this unprecedented transformative innovation steadily.

Draft link: https://www.satoshiaction.io/sbr

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