Texas Strategic Bitcoin Reserve would cost taxpayers #CriptoNews

Cryptocurrency bros are not satisfied with making money off our wobbly electric grid, now they’ve convinced Lt. Gov. Dan Patrick to spend tens of millions of taxpayer dollars on a Strategic Bitcoin Reserve to boost an industry that many experts warn will end in tears.

Patrick made creating the reserve one of his top priorities. In testimony before the Senate Business and Commerce Committee, Texas Comptroller of Public Accounts Glenn Hegar, the state’s chief financial officer, said he worked on Senate Bill 21, but he still couldn’t answer basic questions even though he would manage the fund.

How much would Texas need to spend to start a “strategic reserve?”

“I haven’t come prepared to give a number,” Hegar answered.

SB 21 would allow individuals and companies to donate to the Strategic Bitcoin Reserve. How would he prevent them from using the reserve to manipulate crypto markets?

“I haven’t actually thought all of these through. Um, there’s a lot of moving pieces,” Hegar replied.

What safeguards would the comptroller recommend?

“Giving us the flexibility to do our jobs,” he answered.

Hegar acknowledged his office already has the authority to buy crypto assets for the state’s portfolio. However, as part of what he called a prudent and conservative investment philosophy, Texas doesn’t hold any commodities or crypto.

“We have started looking at: Is this a potential part of our portfolio of the different endowments that we may have and different funds that we manage?” Hegar explained. So far, he’s decided against it.

SB 21’s sponsor, state Sen. Charles Schwertner, R-Georgetown, argued Texas has missed out on the meteoric rise of bitcoin’s valuation, and he sees it as a hedge against federal budget deficits and a potential collapse of the U.S. dollar.

Disturbingly, he imagines a time when money issued by governments is worthless, and somehow bitcoin survives.

“All fiat currency eventually goes to its natural worth, which is the paper it’s printed on,” Schwertner warned. “We can buy land; we can buy gold. I think the state of Texas should have the option of evaluating the best-performing asset of the last 10 years.”

The bill, as written, would order Hegar to buy only bitcoin, the most-mined currency in Texas.

Government cryptocurrency purchases are little more than a kickback for crypto executives who spent big in the last election. They are desperately looking for official endorsements to justify their industry.

Cryptocurrencies rely on the “greater fool theory.” The industry generates buzz around bitcoin or TrumpCoin to convince people that strings of ones and zeroes have value. People buy crypto, prices rise and early investors sell, leaving latecomers holding the bag.

Absent government oversight, large market participants and foreign governments can and have manipulated crypto markets through large sales or additional regulations.

Advocates have cycled through numerous arguments for why crypto should exist at all. First, they said it was a libertarian currency for those who wanted to shake off the government yoke. But so many criminals rely on crypto that industry leaders now want regulation.

A few years ago, enthusiasts argued crypto would ease international transactions and become a common currency, but that’s failed, too. The financial and environmental cost of each transaction makes it impossible to use these digital coins like a credit card, and traditional banking is safer.

Crypto bros now argue it is an asset class, like stocks, bonds and gold or other commodities. Yet economists agree that, unlike investments with a hard asset backing them, cryptocurrencies only exist in people’s imaginations.

If national and state governments buy and hold cryptocurrencies, they are not only endorsing the industry and injecting billions into it, but they are also taking a stake in the game. The definition of a strategic reserve is that government officials use it to prop up markets in a crisis. The reserve commits Texas taxpayers to bailing out crypto.

Texas Republicans are on a fast track to approving SB 21. The bill will allow Hegar to hire a crypto firm to manage the strategic reserve in yet another giveaway to an industry that does little more than waste electricity.

SB 21 needs to die. The comptroller already has the authority to invest in cryptocurrency assets overseen by the federal Securities and Exchange Commission. Hegar has all the authority he needs to buy crypto if it makes sense for Texas’s portfolio.

Creating a special account where lawmakers order state officials to buy crypto or where tech bros can make donations to drive up prices is pure cronyism. What’s remarkable is that a Republican party known for fiscal conservatism would push such a foolish gambit.

Award-winning opinion writer Chris Tomlinson writes commentary about money, politics and life in Texas. Sign up for his “Tomlinson’s Take” newsletter at houstonchronicle.com/tomlinsonnewsletter or expressnews.com/tomlinsonnewsletter.