The following article was originally published in the Ohio Capital Journal and published on News5Cleveland.com under a content-sharing agreement.
The Ohio House plan to set up a cryptocurrency reserve is turning into something a bit different.
One recent amendment expanded the scope of potential investments to include more traditional assets like bonds or exchange traded funds.
That change also directs a share of the interest earned on mortgage insurance, the rainy-day fund and unclaimed funds to the effort, and scrubs “cryptocurrency” from the new fund’s name.
Another tweak, approved Tuesday, gives the officials tasked with overseeing the fund certain liability protections if those investments go south.
The idea gave state Rep. Ismael Mohamed, D-Columbus, pause during Tuesday’s hearing.
“Does that also apply to acts of negligence or mismanagement?” he asked. “I certainly understand that the goal of this amendment, but I wanted to make sure does it apply to that degree to actual acts of negligence or impropriety?”
The measure’s sponsor, state Rep. Steve Demetriou, R-Bainbridge Twp., said “I want to assume it does not,” and described the changes as a way to protect state employees operating in good faith from changes in the market.
“Those employees of that agency or office are not liable for fluctuations in the market,” he said, “and I think that’s what we’re trying to clarify with this amendment.”
Still Demetriou acknowledged he wasn’t completely sure and promised to follow up with Mohamed.
What does the proposal look like now?
As it was initially envisioned, the Ohio Strategic Cryptocurrency Reserve would have permitted the state Treasurer to invest up to 10% of the uncommitted money in Ohio’s general fund, rainy day fund, and lottery trust in digital assets.
Importantly, the bill was discretionary — the Treasurer wasn’t required to invest in any crypto at all. But if the Treasurer did decide to invest, the options were tightly restricted.
Only digital assets with a market capitalization of at least $750 billion were eligible. The only cryptocurrency that fits that bill is Bitcoin, with a market cap of $2.4 trillion as of Oct. 7.
The next closest cryptocurrency, Ethereum, comes in at about $538 billion.
In May, Zach Prouty from the State Treasurer’s office testified before the committee. He explained from the Treasurer’s perspective money falls in two buckets: active and interim.
The active money is like a checking account — liquid funds, available immediately. But interim money gets invested in securities, “maturing within one day or up to five years.”
Still, the entire pool of money is managed as a single fund, so the Treasurer’s investment strategy emphasizes “safety, liquidity and earnings.”
Essentially, the state needs reliable returns, turning over quickly enough that there’s always enough to cash to meet its needs.
Earning a bit of interest, Prouty said, is “icing on the cake.” In the last two fiscal years, the state’s investments generated $2 billion in interest.
Demetriou’s original proposal encouraged the Treasurer’s office to use a small portion of the funding at its disposal to chase even greater returns investing in crypto.
But at a committee hearing in March, he insisted the idea is to make “long term holds,” not for the Treasurer to try out day-trading.
For what it’s worth, a $100 investment in Bitcoin back then would be worth just shy of $150 today according to a calculator hosted by Bitbo.
That underlying idea of a small fund seeking greater investment gains is still there, but it’s scope is different.
The Treasurer can still invest in crypto, but any other exchange traded asset or commodity is on the table now as well.
Prouty explained the Treasurer’s office is somewhat indifferent about what money the state pours into the new fund, but that a consistent revenue stream would be best for growth.
“Carving off investment earnings from other large state funds would be a great way to ensure some consistent cash flow while not tying up dollars that are otherwise appropriated in the budget,” he told the committee.
Under an amendment approved in May, 5% of the interest from mortgage insurance and unclaimed funds as well as 10% of the interest from the rainy-day fund will go to the new Ohio Strategic Reserve Fund.