Executive summary
As Bitcoin, regulated stablecoins, and crypto-linked equities have gained legitimacy in institutional finance through recent federal actions, a handful of public pension funds have begun taking limited exposure, and many more have been quietly exploring the possibility of entering the market. This report finds that Bitcoin’s growing institutional and monetary adoption, its fixed supply, and historical performance indicate that it can be a legitimate—though highly volatile—return and diversification instrument for public pensions.
Fully backed and properly regulated stablecoins can be treated as cash-equivalent settlement instruments rather than speculative assets. By contrast, most alternative cryptocurrencies—i.e., those other than Bitcoin, Ethereum, and stablecoins—should be avoided and remain dominated by governance risk, regulatory uncertainty, technological obsolescence, and near-zero recovery value in failure scenarios.
The role of Bitcoin and other digital assets in a pension portfolio is not without precedent. Many public pension systems already hold gold, which is also a non-yielding, inflation-sensitive diversifier and store-of-value asset. Public pensions routinely allocate to assets for hedging, appreciation, and diversification purposes rather than income generation. In fact, most public pensions already have exposure to cryptocurrencies through public equities such as MicroStrategy and Coinbase, which are part of major stock indices.
Aggregating the investments identified in this report, total direct and indirect digital-asset exposure across public pensions already exceeds $1 billion.
This report establishes a prudent fiduciary framework for any public pension considering digital-asset exposure. Core principles include: (1) crypto investments must serve solely the fiduciary duty to maximize risk-adjusted returns; (2) total digital-asset exposure should be capped (generally 2%–10% of assets under management, or AUM) and sourced from existing alternative allocations to avoid increasing aggregate portfolio risk; (3) enhanced due diligence is required for custody, audit quality, counterparty risk, and regulatory compliance; (4) all direct and indirect crypto exposure must be fully disclosed in public reports; (5) crypto-specific stress testing (e.g., 80% drawdowns, exchange failure, regulatory bans) must be embedded in risk models; (6) rebalancing rules must account for crypto’s heightened volatility; and (7) every allocation must include a planned exit strategy tied to custody failure, regulatory change, or breach of risk limits.
Applied rigorously, this framework provides guidance for public pensions evaluating Bitcoin and other crypto assets as controlled asymmetric-return tools and inflation hedges rather than as unbounded speculative assets—protecting both pension beneficiaries and taxpayers from uncompensated and unreasonable risk.
Full Study: U.S. public pension and trust fund investment in digital assets
Frequently asked questions about public pensions investing in Bitcoin and other digital assets