Texas is on the verge of becoming the third U.S. state to establish a state-managed Bitcoin.

The Texas Strategic Bitcoin Reserve and Investment Act, SB 21, was approved by the House of Representatives with a vote of 101-42.

Texas may soon become the third U.S. state to hold Bitcoin (BTC) in a state-managed reserve, following the House of Representatives' approval of a bill to create a Strategic Bitcoin Reserve and Investment Act.

The Texas House voted 101-42 on Monday to pass Senate Bill (SB) 21, sending it to Governor Greg Abbott's desk for final approval.

The legislation empowers the state comptroller to invest in Bitcoin and, potentially, other cryptocurrencies that meet the criteria of having a market cap greater than $500 billion over the past 12 months. Currently, only Bitcoin meets this requirement.

The bill, sponsored by State Senator Charles Schwertner and House advocate Rep. Giovanni Capriglione, was presented as a move to further Texas's leadership in digital innovation.

"Texas is on the verge of becoming a beacon of financial leadership," said Schwertner during the Senate discussions in April.

"We're setting the stage for a new era of economic opportunity, an era where Texas will not only follow but lead. We're at the forefront of technological revolution, and this bill is a testament to that leadership."

The bill's passage follows the recent momentum of Bitcoin, which hit a record high above $109,000 last week.

The legislation also directs the creation of a formal Bitcoin reserve, enabling the state to diversify its financial strategy with digital assets.

Texas, with an economy valued at $2.7 trillion (eighth largest in the world if it were a country), is already known for its openness to crypto. Governor Abbott has voiced his strong support for digital assets and accepted Bitcoin donations for his political campaigns.

Earlier this year, Arizona and Montana saw governors block or veto similar proposals to create state-managed Bitcoin reserves.

While the governors in both states expressed respect for the initiatives' intent to explore new revenue streams for the state, they ultimately cited concerns over the volatility of cryptocurrency markets.

However, New Hampshire Governor Chris Sununu signed a bill in March to create a Bitcoin trust fund, rendering the state the first in the U.S. to do so.

The new law mandates investing a portion of the state's idle cash reserves, typically used for short-term investments like government bonds, into Bitcoin.

This move was presented as a step to diversify the state's investment portfolio and potentially generate higher returns compared to traditional assets.

The legislation, which passed the state House and Senate in March, directs the state treasurer to invest up to 1% of the total portfolio in Bitcoin each year over a five-year period.

Following this initial allocation, the state comptroller will decide on the optimal portion of the portfolio to hold in Bitcoin based on market conditions and investment strategy.

The bill specifically mentions investing in "digital assets," leaving room for expanding into other cryptocurrencies beyond Bitcoin in the future. It also emphasizes that these investments should be made in a "prudent and diversified manner."

The legislation had broad bipartisan support in both chambers, passing the House with a vote of 171-0 and the Senate with a vote of 23-1.