State Rep. Steve Demetriou, R-Bainbridge Twp. (Photo from Ohio House website.)
The Ohio House’s plan to create a cryptocurrency reserve is turning into something a little different.
One recent amendment expanded the range of potential investments to include more traditional assets such as bonds or exchange-traded funds.
This change also directs a portion of the interest earned from mortgage insurance, rainy day fund and unclaimed funds to this effort and removes “cryptocurrency” from the name of the modern fund.
Another amendment approved Tuesday gives officials responsible for overseeing the fund some liability protection if investments fail.
The idea prompted state Rep. Ismael Mohamed of British Columbia to pause during Tuesday’s hearing.
“Does this also apply to negligence or mismanagement?” he asked. “I certainly understand what the intent of this amendment is, but I wanted to make sure it addresses actual negligence or inappropriate behavior to that extent?”
The measure’s sponsor, state Rep. Steve Demetriou, R-Bainbridge Twp., said, “I want to assume that’s not the case,” and described the changes as a way to protect bona fide state employees from market changes.
“The employees of this agency or office are not responsible for market fluctuations,” he said, “and I think that is what we are trying to make clear in this amendment.”
Despite this, Demetriou admitted that he was not entirely sure and promised to contact Mohamed.
What does the proposal look like now?
As initially envisioned, Ohio’s Strategic Cryptocurrency Reserve would allow the state treasurer to invest up to 10% of uncommitted money in Ohio’s general fund, rainy day fund and lottery fund in digital assets.
Importantly, the act was discretionary – the treasurer was not obliged to invest in any cryptocurrency at all. However, if the treasurer decided to invest, the possibilities would be strictly confined.
Only digital assets with a market capitalization of at least $750 billion were eligible. The only cryptocurrency that fits this bill is Bitcoin, which has a market capitalization of $2.4 trillion as of October 7.
The next closest cryptocurrency, Ethereum, is worth around $538 billion.
In May, State Treasurer Zach Prouty testified before the committee. He explained that from the treasurer’s perspective, the money is divided into two baskets: busy and short-lived.
Active money works like a checking account – liquid funds, available immediately. However, short-lived funds are invested in securities “maturing within one day or up to five years.”
Despite this, the entire pool of funds is managed as one fund, which is why the Treasurer’s investment strategy emphasizes “safety, liquidity and profits.”
Basically, the state needs reliable profits that turn over quickly enough so that there is always enough cash for its needs.
Earning a little bit of interest, Prouty said, is “the icing on the cake.” Over the last two fiscal years, state investments generated $2 billion in interest.
Demetriou’s original proposal encouraged the treasurer’s office to exploit a tiny portion of available funds to make even greater profits from cryptocurrency investments.
But at a March committee hearing, he insisted it was about “holding stocks for the long term,” not about the treasurer trying day trading.
For what it’s worth, a $100 investment in Bitcoin would be worth just over $150 today, according to calculator powered by Bitbo.
The basic idea of a tiny fund seeking higher investment returns still exists, but the scope is different.
The treasurer can still invest in cryptocurrencies, but any other exchange-traded asset or commodity is now also on the table.
Prouty explained that the treasurer is somewhat indifferent to how much money the state puts into the modern fund, but a steady stream of revenue would be best for growth.
“Separating investment earnings from other large state funds would be a great way to ensure steady cash flow, without tying up dollars that would otherwise be budgeted,” he told the committee.
Under the amendment approved in May, 5% of mortgage insurance and unclaimed funds interest and 10% of rainy day fund interest will go to Ohio’s modern strategic reserve fund.
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