Game of Thrones: How the Institutionalization of Bitcoin Reshapes Its Future

Author: Will Jager, Bitcoin Magazine; Compiler: Baishui, Golden Finance

Political spending by cryptocurrency companies has increased dramatically in this election cycle, and the industry is expected to influence US politics. Currently, several states have begun to explore the establishment of strategic Bitcoin reserves. As Bitcoin becomes more institutionalized, the adoption of Bitcoin by state treasuries is seen as a victory for the cryptocurrency industry.

However, the trend has raised concerns about the future rights of Bitcoin holders, as more government supervision and institutional involvement could transform Bitcoin from the decentralized, peer-to-peer currency dreamed of by cypherpunks to just another financial asset.

Crypto companies have spent more than $119 million to influence federal elections in the 2024 election cycle, and nearly half of corporate political donations this year have come from the cryptocurrency industry. The funds went primarily to Fairshake, a nonpartisan super PAC that supports pro-cryptocurrency candidates and opposes crypto skeptics. Crypto companies are now the largest corporate political spenders, surpassing even Koch Industries, which has made large contributions but still lags far behind. Since the 2010 Citizens United ruling, crypto companies have spent $129 million, making them the second-largest corporate election spenders after fossil fuel companies. This unprecedented level of spending reflects the industry's push to create regulations that favor itself.

With the election over, states are expected to adopt more crypto-friendly policies, including allowing public pension funds and treasuries to invest in Bitcoin. Some state pension funds, such as Wisconsin and Michigan, have already added Bitcoin ETFs to their portfolios. In November, Rep. Mike Cabell introduced the Pennsylvania Bitcoin Strategic Reserve Act, proposing that the state treasurer allocate 10% of Pennsylvania's general fund, emergency fund, and state investment fund to Bitcoin. In December, Texas Rep. Giovanni Capriglione introduced a bill that would require strategic reserves of Bitcoin to be stored in cold wallets for at least five years, and Ohio Rep. Derek Merrin introduced a bill that would establish a Bitcoin fund in the state treasury and grant the state treasurer discretion to purchase Bitcoin.

Meanwhile, Some U.S. states are leading the way in cryptocurrency and blockchain regulation. Arizona has considered legislation to define Bitcoin as legal tender and allow state agencies to accept cryptocurrency payments. Oklahoma has enacted laws confirming the right to self-custody of cryptocurrencies and the right to mine digital assets. The Pennsylvania House of Representatives passed a bill that ensures the right to self-custody of digital assets and the right to conduct cryptocurrency transactions, and Louisiana now has regulations for node operations and home digital asset mining. Recently, 18 U.S. states also filed a lawsuit against the U.S. Securities and Exchange Commission (SEC), seeking to stop its enforcement actions regarding cryptocurrency regulation. The states believe that the SEC is exceeding its authority by attempting to regulate digital assets without explicit approval from Congress. They believe that such regulatory power should belong to the states. It is unclear whether the court will support this legal argument.

Meanwhile, at the federal level, regulation remains severely lacking in clarity, and Bitcoin’s classification as a commodity rather than a legal tender further complicates the regulatory framework. This year, the CFTC and SEC have stepped up enforcement actions against cryptocurrency companies that continue to take an aggressive regulatory approach. Recent legal actions against Tornado Cash and Samourai Wallet demonstrate the federal government’s concerns about digital assets, such as peer-to-peer transactions and “non-custodial” wallets that bypass traditional financial regulation, which presents challenges for AML/CFT enforcement, especially when used in conjunction with anonymity-enhancing tools such as mixers. While some states have a supportive stance toward Bitcoin, most have no policies and simply apply existing money transmission laws to virtual currencies, requiring businesses that handle cryptocurrencies to obtain a money transmitter license. Without clear federal regulation, Bitcoin and cryptocurrency companies that wish to serve the U.S. market must comply with different laws in all 50 states, shutting out all but the most well-funded businesses.

State-level investment marks a significant shift in Bitcoin from its initial emergence as an alternative to the traditional financial system.Governments and regulators have expressed concerns about money laundering, tax evasion, and criminal use. Bitcoin holders cheer the rise of strategic Bitcoin reserves by states and corporations, but adoption by treasuries does not necessarily lead to greater rights for Bitcoin holders. Just because governments hold Bitcoin does not mean they will suddenly agree with others holding Bitcoin or decide to give up power as fiat money printers. If political priorities follow funding, then the cryptocurrency industry’s main goal this year seems to be influencing state pension funds and establishing strategic Bitcoin reserves, rather than writing self-custody rights or greater privacy into law.

The push for strategic reserves marks a clear shift in Bitcoin from its anti-establishment origins as a peer-to-peer currency without intermediaries to a purely fiscal asset. Currencies do not require a third party; you can exchange currency directly for the goods and services you want. Assets, on the other hand, usually require a third party. In order to obtain goods or services, you must sell assets for currency, borrow against assets, or lend assets for a yield. Tax professionals are needed to report gains and losses, accountants to track assets and their derivatives, lawyers to draft contracts, police and regulators to enforce them, banks to issue, hold and control money, and politicians, as always, to write the laws and regulations that determine the winners and losers.

Bitcoin, as a fiscal asset, poses no threat to the establishment. It simply reinforces the existing system and rewards Bitcoin holders with price appreciation. As a treasury asset, Bitcoin is no different than gold, pork bellies, or mortgage-backed securities; just another commodity that is endlessly packaged, derived, and traded. On the other hand, Bitcoin, as free money that can be held privately and traded without permission, challenges the status quo and can be a powerful tool for financial equality. It empowers the individual over the herd, levels the playing field for those excluded from the current financial system, protects people from inflation, and effectively allows market forces to determine the winners and losers. Storing digital gold in secure vaults subject to financial regulation would address the federal government’s concerns about Bitcoin, both legitimizing it and encouraging institutional adoption, but if Bitcoin continues on this path, rising prices could blind people to what they stand to lose in the process…