Public pension systems have shown increased interest in investing in digital assets such as Bitcoin, Ethereum, and other cryptocurrencies as they become more integrated into mainstream financial markets. Because many public pension systems are underfunded today and provide retirement benefits ultimately guaranteed by taxpayers, any investment in digital assets must be grounded in fiduciary duty, prudence, and risk control—not in novelty or return-chasing.
Reason Foundation recently published the study, “U.S. Public Pension and Trust Fund Investment in Digital Assets: Policy Considerations for Public Sector Investment in Bitcoin, Stablecoins, and Other Cryptocurrencies,” which finds digital assets to be a promising but high-risk asset class requiring explicit investment guardrails to protect the public interest in pension solvency. The focus is not on promoting investment, but rather on providing a prudent framework for public pension systems considering cryptocurrency investment, clarifying how public pensions should think about governance, risk management, allocation limits, custody, operational safeguards, and transparency if they choose to engage.
In this post, we address a few basic questions, as well as more detailed ones, about the report and the emerging policy issues related to cryptocurrencies and digital assets.
What are this study’s most important recommendations?
The report recommends best practices for state treasurers and public pension systems considering digital-asset exposure. The core principles include:
- Cryptocurrency/digital asset investments must serve solely the public pension system’s fiduciary duty to maximize risk-adjusted returns.
- A public pension’s total digital-asset exposure should be capped (generally at 2%–10% of assets under management and sourced from existing alternative allocations to avoid increasing aggregate portfolio risk.
- Enhanced due diligence is required for custody, audit quality, counterparty risk, and regulatory compliance.
- Pension systems must publicly disclose all direct and indirect cryptocurrency exposure.
- Cryptocurrency-specific stress testing (e.g., 80% drawdowns, exchange failure, regulatory bans) must be embedded in risk models.
- Rebalancing rules must account for the heightened volatility of digital assets; and
- Every allocation must include a planned exit strategy tied to custody failure, regulatory change, or breach of risk limits.
Applied rigorously, this framework would help protect public pension beneficiaries and taxpayers from unnecessary and unwarranted risk.
What are digital assets?
“Digital assets” is used as an umbrella term for blockchain-based technologies that enable secure, transferable digital ownership. For public pension considerations, the most relevant categories are Bitcoin, stablecoins, and other cryptocurrencies and tokens.
- Bitcoin: Bitcoin is the first and most widely adopted digital asset. It is best seen as both a currency and a payment system, and because of its fixed supply, it is often referred to as “digital gold.” It operates on a decentralized public blockchain, which is a distributed, immutable ledger maintained by a global network, not by a state. It allows peer-to-peer transactions without reliance on banks or other intermediaries.
- Stablecoins: Stablecoins are blockchain-based tokens designed to maintain a stable value by being pegged to a fiat currency, typically the U.S. dollar. They are generally backed by cash or cash-equivalent reserves, often short-term U.S. Treasuries. The largest are Tether (USDT), USD Coin (USDC), and Dai (DAI).
- Other cryptocurrencies: Other cryptocurrencies and tokens (“altcoins”) encompass a wide range of blockchain assets serving different functions, including smart-contract platforms (e.g., Ethereum, Solana), decentralized finance (DeFi) services, governance and utility tokens, NFTs, and application-specific use cases such as payments, data services, gaming, or privacy.
How should public pension plans think about investing in digital assets/cryptocurrencies?
Cryptocurrencies are alternative investments, and, as such, public pension plans should approach them with the same caution they apply to other high-risk asset classes. Before considering digital assets, fiduciaries should assess whether lower-risk, more liquid options can better satisfy their fiduciary duty.
Cryptocurrency markets have matured in recent months, driven by both moves by the Trump administration and growing mainstream adoption. Some institutional investors, including major university endowments such as Harvard and Brown, now hold Bitcoin in their portfolios. Institutions such as BlackRock, Fidelity, and Bank of America have suggested that a small allocation of 2%–10% in cryptocurrencies can be part of a diversified portfolio.
Public pension systems, however, are distinct. Their investment losses are ultimately socialized, borne by taxpayers, not beneficiaries. As a result, entering a new and volatile asset class requires heightened scrutiny and a clear understanding of downside risks.
Any exposure to digital assets must be governed by a disciplined, rules-based framework consistent with fiduciary duty—emphasizing prudence, transparency, and risk control. Given the early stage of market development and uncertain performance across economic cycles, digital assets introduce added complexity and risk.
If a public pension system chooses to invest in cryptocurrencies or other digital assets, allocations should be small, fully disclosed, and subject to strict custody, stress-testing, rebalancing, and exit rules.
With the volatility of Bitcoin and other cryptocurrencies, doesn’t investing in them amount to gambling with taxpayer-backed pension assets?
As recent volatility in Bitcoin and other cryptocurrencies reminds investors, these assets have crashed before and will crash again. The question for public pension systems is whether Bitcoin or other digital assets offer appropriate upside relative to their risks, and whether those risks are properly understood, disclosed, and deliberately managed by the pension systems.
Investing in cryptocurrencies may offer public pensions exposure to a new asset class and inflation or dollar hedging benefits, but these features come with risks and extreme volatility. Public pension systems should not be exposed to speculative or uncontrolled risk. Any public pension investment in digital assets should be subject to strict limits, transparency, and a rules-based fiduciary framework. A small, capped allocation to Bitcoin, governed by clear custody, rebalancing, and exit rules, for example, is fundamentally different from unmanaged speculation on a brand-new altcoin.
How have public pensions invested in cryptocurrencies and other digital assets already?
The public pensions that have invested in digital assets have done so cautiously and primarily through indirect exposure rather than direct ownership. The most common approach has been to hold publicly traded equities whose value is closely tied to cryptocurrency markets—most notably Bitcoin treasury companies like MicroStrategy, cryptocurrency exchanges such as Coinbase, and cryptocurrency mining firms. Because these securities are included in major equity indexes, many pensions already hold them through existing public equity allocations that track indexes.
Direct exposure remains limited but is growing. A small number of pensions have gained Bitcoin exposure through regulated spot exchange-traded funds (ETFs), which provide price exposure without the operational complexity of self-custody. Others have indirect “picks-and-shovels” exposure through either public or private equity investments in cryptocurrency infrastructure, custody providers, chip manufacturers, or blockchain technology.
A recent white paper by a Marquette University professor analyzed financial filings for 17 of the largest U.S. public pension systems and found that, by mid-2025, these funds already hold $3.32 billion in cryptocurrency-linked equities and ETFs. Overall, existing public pension exposure to digital assets is modest, diversified across vehicles, and largely embedded within traditional asset classes rather than standalone cryptocurrency allocations.
Should public pensions be more open to investing in cryptocurrency than in private equity and other types of higher-risk, alternative asset categories? Why?
Reason Foundation’s Pension Integrity Project views private equity and cryptocurrency similarly. They are high-risk asset classes that warrant heightened scrutiny in public pension portfolios.
Reason’s concern with public pension systems expanding investments in private equity is that it often exposes taxpayers to illiquid, leveraged, high-fee, and opaque investments with questionable net returns and limited accountability.
Cryptocurrencies present distinct risks, but they raise the same core fiduciary issue: unchecked exposure to an untraditional asset that can amplify contribution volatility and shift additional financial risk onto taxpayers.
Because cryptocurrencies are newer and less familiar to public pension trustees than private equity, the paper’s purpose is not to advocate for them, but to specify what a responsible governance framework would require if a public pension or public trust chooses to engage with cryptocurrencies and digital assets. The proposed framework in this paper for investment in digital assets includes special allocation caps that account for the inherent volatility of Bitcoin and other digital assets, enhanced due diligence, full transparency, stress testing, disciplined rebalancing, and clear exit rules. This framework closely mirrors the controls Reason has long argued should apply to private equity and other alternative investments.
What is the maximum percentage of a pension fund’s assets that the report recommends be invested in cryptocurrency?
This study recommends limiting public pension exposure to cryptocurrency and explicitly capping it by law or investment policy. For pension plans that choose to invest in digital assets, the report identifies a prudent upper range of 2%–10% of total assets, consistent with prevailing institutional guidance.
While the Trump administration has eased regulations on cryptocurrencies for now, how should public pension officials account for the uncertainty around future political, regulatory, tax, or other changes that could negatively affect the value of cryptocurrency investments held by public pension systems?
Public pension officials should treat regulatory and political risk as a core investment risk, not a secondary consideration, and explicitly price it into any investment decision. Even if current federal policy is permissive, cryptocurrency markets remain sensitive to shifts in global regulatory and tax policies.
Any exposure to digital assets in a pension portfolio should be stress-tested to ensure fiduciaries understand the implications of different policy or economic scenarios. For example, this report recommends strong reporting guidelines that would include simulating a complete loss in digital asset value.
How can public pension systems ensure cryptocurrency investments aren’t hacked or stolen?
Almost all hacking and cryptocurrency losses occur when people hold their own keys, and either they lose the password or a hacker discovers it. To best minimize custody risk, pensions can invest in digital assets through regulated vehicles such as spot cryptocurrency ETFs or publicly traded cryptocurrency-linked companies, which eliminate direct key-management risk. Though, given the industry’s many bankruptcy cases, enhanced due diligence on custodians and counterparties would be prudent.
Full Study: U.S. public pension and trust fund investment in digital assets