North Carolina May Become One of the First States to Allow Its Pension Funds to Invest in Cryptocurrencies

North Carolina has taken steps toward allowing state pension funds to invest in cryptocurrencies, with the state House approving two bills that would overhaul how the state manages its investments.

The North Carolina House has taken steps toward allowing state pension funds to invest in cryptocurrencies, approving two bills that would overhaul how the state manages its investments and could place North Carolina among the first states to formally invest public funds in digital assets.

The House voted 110-3 on Thursday to pass House Bill 506, which would create a five-member North Carolina Investment Authority to manage the state’s $127 billion portfolio. The measure now awaits Senate approval.

Later Thursday, the House passed House Bill 92 in a closer 71-44 vote. That bill, which still requires a Senate vote, would permit up to 5% of the state’s investments to be allocated to cryptocurrencies.

Both bills were on the agenda for a third reading and final vote. However, due to a technicality in the last vote on HB 92, the bill will require another vote on Friday.

State Treasurer Brad Briner, a Republican who took office in November, has backed both bills. The legislation would shift investment authority away from the treasurer’s sole control to the new board, while expanding investment options to include digital assets.

The bills are part of a broader effort to reform the state’s pension system, which faces a $16 billion deficit. The fund has also performed poorly in recent years, ranking among the worst-performing state pensions in a recent ranking by the PEW Charitable Trust.

New Management Structure

The legislation creates a five-member investment authority, with members appointed by the governor, speaker of the house, senate president pro tem, and treasurer. Each member must have "expert knowledge of investments" and at least 10 years of experience managing pensions or other investments.

The board would appoint a chief investment officer, who would be responsible for negotiating third-party contracts.

The legislation also includes several protections against conflicts of interest and would require the state to obtain an independent third-party assessment before investing in any cryptocurrencies.

Those investments would also be limited to diversified crypto products, similar to mutual funds, rather than direct investments in specific cryptocurrencies, like Bitcoin.

Recent amendments to the bill also allow for exploring ways to let retirement plan members opt to invest in digital assets held as exchange-traded products.

“We need to spread the allocation around,” said Rep. Keith Kidwell, a Republican from Beaufort, in remarks on Thursday. “Just like any good investment broker would do for you.”

Democrats who spoke against the measure raised concerns about the volatility of cryptocurrencies.

"I still have a lot of questions about this investment strategy and the level of commitment we’re making to it," said Rep. Maria Cervania, a Democrat from Wake County.

The bill has also drawn criticism from some interest groups. The State Employees Association of North Carolina has come out against the legislation, while Democratic Governor Josh Stein has voiced support for the measure.

The legislation also includes provisions for a potential "strategic reserve" of digital assets for the state and options for state employees to include crypto in their own portfolios.

North Carolina joins Arizona in the endeavor to invest state funds in cryptocurrencies. On Friday, the Arizona House approved two bills proposing different methods for establishing a state crypto reserve.

This makes Arizona the only state where both the House and Senate have passed bills on investing state funds in cryptocurrencies in the 2024 legislative session. Both bills still require the approval of the other chamber and Governor Doug Ducey to become law.

If the North Carolina bills pass the Senate and become law, the authority to invest in digital assets would transfer to the new investment board, which would make decisions based on third-party assessments.

These legislative efforts are part of a broader trend as state governments are exploring opportunities in the evolving digital asset space, balancing the potential investment returns against the risks of cryptocurrency markets.