Multiple U.S. states consider strategic bitcoin reserves: CNBC Crypto World

Today, Eli Cohen of Centrifuge breaks down the trend of states proposing a strategic Bitcoin reserve and what it means for local taxpayers. Welcome to CNBC's Crypto World. I'm Tanaya McKeel. We're jumping right to our main story today. Crypto World's Jordan Smith spoke with Eli Cohen, General Counsel at Centrifuge, about the growing trend of states proposing strategic Bitcoin reserves alongside U.S. lawmakers considering a stockpile at the federal level. Cohen shares whether he thinks these proposals in states like Texas and Ohio will pass, and whether the U.S. can make a stockpile happen in Trump's next term. All right, Eli, I wanted to bring you on first to talk about this sort of trend of states looking into strategic Bitcoin reserves. We've got Ohio proposing one recently, along with Texas, and they're following a proposal at the federal level to do the same, which I'll get to in just a moment. But I want to start with your reaction to those proposals coming out of multiple states and just how feasible they feel to you. Yeah, it's great. I mean, it's a great development for our markets. Obviously, we love when the great state of Texas plays in our markets. It's a huge help to the sentiment. And we can get the Bitcoin price to go higher because of it. That's all great, all good stuff. So the market loves it. So that's one thing. I think that the bills are a little bit different, though, the state bills than at least the Texas bill is a little bit different than the Loomis bill. The Loomis bill is actually one in which the federal government would purchase Bitcoin. So there would be a direct impact on the price of Bitcoin, not just because it's the federal government, but because there's a new buyer in the market. The state ones are a little bit different. The Texas one, they're not going to be purchasing any Bitcoin themselves. Instead, it's going to be an ability for Texas residents to pay their taxes in Bitcoin or to make donations to the state in Bitcoin. So the implementation there is going to be quite interesting. I think it's certainly feasible, and we love to see more use cases for all kinds of crypto, especially in our real-world assets market. The more real-world business cases there are for the use of crypto, the better. But it's going to be a little complicated, I would say. The tax authority is going to have to figure out how to link up somebody's Bitcoin wallet with their tax obligations, with their tax bill, so that they can match up the Bitcoin that they receive with the obligation to pay the tax. That means probably someone's going to have to give their Bitcoin wallet to this tax authority. And the crypto market is not really very friendly, necessarily, to the Texas authorities, and people are not going to necessarily want to give up their wallet addresses. So I think the implementation there is going to be a little bit challenging. And then there's a series of other things that they're going to have to do, custodians and exchanges to convert it into a fiat. So it'll be interesting to see where they go with it. And it may be a big boon to the market if they do select certain service providers, because those service providers will clearly have a boost if they have a state government who's decided to use their services. Yeah. And it sounds like, at least from what you're saying there, it's less about the political hurdle of actually passing the bill, and more about the infrastructure of making it happen. And to your point, like you mentioned, the way that these proposals work, at least in Texas, is that the state would allow residents to pay taxes and fees in crypto. Do you have any insight as to why that's the way they're choosing to build up the stockpile and sort of the tax implications for those residents who choose to do so? Because that would be a realized gain, as far as I understand it. So there would be tax implications on top of the payment you're paying for taxes, correct? Yeah. Well, that's a good question. I mean, I think that that's something that the tax authority in Texas may give you a benefit, right? I suppose they could treat that as not a capital gains. And if you make a transfer for payment purposes, it's like if you make a payment for anything else. And if the dollar price goes up, then you would be getting the benefit of it. So maybe that's why they're doing it, is because it would give an incentive to Texas residents to avoid a number of potential capital gains, whether the IRS and the federal government treat it the same way is a different question. But that may be one way to do it. I think the reason they're doing it this way, of course, is probably just because it's a lot easier, right? It's much easier politically to say, well, we're giving an option to our residents to pay in this cryptocurrency. And you don't really have to make any decisions about allocations from a budgeting standpoint and taking money away from other priorities. Let's go back to the federal level, which you mentioned earlier. You've got that proposal from Lummis. You've heard from Trump that he would be open to a stockpile or reserve of some kind. I guess the same question for you on the federal level about just how likely it is we would see either of those proposals move forward. I mean, we spoke to French Hill on CryptoWorld earlier this week, who's going to be chairman of the House Financial Services Committee. It looks like he said that he was skeptical about a strategic Bitcoin reserve. So it seems like there's going to be more pushback at the federal level. But what are your expectations there? I mean, I think that a number of the things that are happening at the federal level are going to move forward. And Lummis is very tied in and she's got a powerful seat and she's been a hell of an advocate for crypto for many years. So I think she probably isn't going to introduce it if she doesn't think it's got a good chance of getting through. So what the House eventually does, I don't know, but I think there's a good chance. I mean, it's not a lot of money. They're not talking about a huge reserve. And it's a fairly innocuous way to say that you're participating in the markets without a lot of real exposure for the federal government. So I think it's got a reasonable chance. I should also mention your general counsel for centrifuge on tokenization. And I want to talk about tokenization a little bit just because I have you here. I mean, it feels like in 2023, that was a big deal, especially on Wall Street, because we were crypto winter. Nobody wanted to talk about price. They wanted to talk about building and tokenization was what Wall Street was focused on. Now that we're removed from that, we've seen Bitcoin up above 100K. We've seen real energy return to the crypto market. What has the energy around tokenization look like from your perspective? Have you seen that build out continue to grow? Yeah, no, we absolutely have. I think it's been accelerating more than anything else. In the tokenized markets right now, the focus has been on tokenized treasury products. And BlackRock entering into the space earlier this year was a huge boost. Now all the asset managers really feel like they're playing catch up. And we're working with a number of asset managers. We're going to be launching products with them next year. And we're really excited about it. And we're not the only one. So the traditional asset managers are certainly very interested in tokenization. There's a lot of ability to streamline operations for them using blockchain. There's a lot of ability to create more tailored and targeted products. So we're just beginning to scratch the surface of what tokenization can do. And I think next year is going to see a huge number of new kinds of products, new kinds of composability for the products that we have. It's going to be a pretty exciting time in tokenization. We were talking about regulation earlier. And I think that kind of brings me back to where regulation fits into this tokenization conversation. Because we've heard time and time again from asset managers and from Wall Street banks that one of the big hurdles for them getting into blockchain, getting into crypto was the regulatory environment. Do you see that changing in 2025? Do you see those roadblocks coming down? How do you feel about that on the tokenization front now that we've already talked about, you know, reserves? I mean, in sort of the real world asset tokenization space, regulatory barriers have been less than other parts of the market. I mean, the big issue for most of the crypto market is what is a security? What is not a security? We don't need to worry about that because what we're talking about here are our security. So everybody is following the existing securities rules. That said, there's been a number of barriers that the SEC has put up for certain types of tokenized products, particularly in the retail space. We'd love to see, you know, a fully 40-act compliant retail tokenized fund launch. There's been a couple of registration statements filed that the SEC has just not done anything about. So maybe that could move next year. But I think the biggest thing is probably just the lack of fear of enforcement action. So once those enforcement actions start to get settled or withdrawn, hopefully, which should be pretty soon next year, I would think, if the Trump SEC is anything like what we expect it to be, the fear in the market is going to get substantially reduced. And that really is a key point, because, you know, in the tokenization space, dealing with a lot of traditional finance asset managers, there's a lot of internal discussions that take place, a lot of internal persuasion that needs to take place for them to enter into the tokenized markets. And the lack of enforcement actions or the withdrawal of enforcement actions will be a huge help for a lot of the work that we do, even though those enforcement actions aren't directly affecting any tokenized products, any RWA products. OK, that's all for Crypto World today. We'll be back on December 26th. Happy holidays and we'll see you then.