The adoption of cryptos continues in the US, gradually changing the country’s monetary regime in a revolutionary way. A growing number of US states are planning to create strategic Bitcoin reserves or allow investments in crypto assets, causing a change in fiscal policy at the state level.
Of the 50 US states, 16 are in an advanced stage in these plans. Utah stands out as the state that is closest to a possible implementation of a plan to change the monetary regime.
The state’s Blockchain and Digital Innovation Bill was approved and recommended for third reading by the Economic Development and Workforce Services Committee on January 28. The Utah bill authorizes the state’s economic policymaker to allocate up to 5% of certain public funds to “eligible digital assets,” as long as they meet the primary requirement of having more than $500 billion in market capitalization, averaged over the past 12 months.
While the bill does not explicitly mention Bitcoin, only the leading cryptocurrency explicitly meets the basic requirement in terms of market capitalization.
On the Bitcoin Trail
While a total of 17 states have submitted plans for similar proposals, North Dakota’s proposal was rejected on February 4, according to data visualized by Bitcoin Reserve Monitor.
Several other states are considering similar moves to allow the use of Bitcoin or crypto in public finances. The momentum at the state level continues to grow, with New Mexico being the most recent case. Senator Anthony L. Thornton introduced the Strategic Bitcoin Reserve Act on February 4, proposing to allocate 5% of public funds to Bitcoin. The Arizona Senate Finance Committee has pushed similar legislation, passing a bill that would allow up to 10% of public funds, including pension systems, to be invested in cryptocurrencies. An Arizona Senate bill would encourage the state’s pension fund portfolio to invest in state-owned assets. The non-binding resolution highlights the explosive market interest in Bitcoin and Bitcoin ETFs following the approval of 11 spot Bitcoin ETFs in January. Wyoming and Massachusetts have joined in, with the latter opening its reserve funds to invest in Bitcoin or any digital asset up to 10% of its stabilization fund. Texas, meanwhile, has taken a different approach with a pair of proposals. It has a Senate bill in the works that would allow up to 1% of its general revenue fund balance to be invested in digital assets. A separate House bill focusing on Bitcoin donations has also been drafted, with provisions for converting crypto payments to Bitcoin. So far, neither has moved forward with a vote. From Oklahoma and Missouri to New Hampshire, Pennsylvania, and Ohio, several U.S. states have proposed or are pending bills, with the legislative status in the 16 participating states being actively monitored by the Bitcoin Reserve Monitor. 
But what about the dollar and Bitcoin?
US President Donald Trump’s aggressive trade strategy will soon face a fundamental contradiction: Imposing tariffs and rejecting multilateral cooperation in the name of protecting American jobs clash with his stated goal of maintaining the dollar’s role as the world’s dominant reserve currency.
Something will have to give, and the dollar, despite its current strength, will likely take a hit. The dollar’s role as the dominant medium of exchange in global trade has fueled the growth of the international euro/dollar market. While this market provides much-needed liquidity, it operates outside the reach of US regulations and therefore has no direct access to the Federal Reserve’s liquidity facilities.
In times of financial turmoil, the Fed must act as the global lender of last resort by extending swap lines, essentially short-term loans, to other central banks, allowing them to channel dollar liquidity to commercial banks facing shortages.
The Federal Reserve’s Safety Net
As the 2008 and 2020 crises demonstrated, the stability of the international financial system depends on the certainty of the Fed’s safety net. Supporting the international financial system is, in a way, the price the United States pays for what French President Valéry Giscard d’Estaing, France’s finance minister at the time, famously called the “excessive privilege” of the dollar’s global hegemony.
Over the years, the dollar’s status has translated into a huge and enduring financial advantage for both the U.S. government and American companies. Other countries, notably China, have long sought to reduce their reliance on the dollar.
Trump’s relentless tariff threats, coupled with his apparent willingness to exploit the size and strength of the U.S. economy to secure better terms of trade, are sure to accelerate these efforts.
Of course, this does not necessarily mean that this poses a serious threat to the dollar’s international standing. After all, no clear alternative to the dollar has emerged. Moreover, this is not the first time that the US has unilaterally disrupted the global financial system.
In 1971, then-President Richard Nixon abandoned the Bretton Woods system without consulting America’s European allies, leaving them to deal with the sudden appreciation of their currencies. Nixon’s move, though unilateral, worked: the world embraced flexible exchange rates, and the dollar’s supremacy actually strengthened.
Nixon’s shock
But the world was very different then. International trade was much less integrated, and economic ties between Western and Soviet bloc countries were virtually nonexistent. The only potential threats to America’s economic dominance came from Japan and Europe, both allies that, as they are today, were weak and divided.
And even under these favorable circumstances, the so-called “Nixon Shock” had far-reaching consequences. For example, one could argue that it led to the creation of the euro.
Today, with China and other emerging economies accounting for a growing share of global GDP and trade, it is hard to imagine that efforts to develop dollar-independent payment systems would not accelerate if Trump continues to weaponize the dollar.
Using the threat of tariffs to beat countries into compliance, as he did when Colombia briefly refused to accept deportation flights carrying Colombian migrants who had entered the U.S. illegally, is a surefire way to fuel the search for alternative reserve currencies.
Trump’s enthusiastic policy on cryptocurrencies suggests that he and his administration see them as a solution to this problem.
Dollar-backed stablecoins share many of the features and advantages that once drove the growth of the Eurodollar market. Here too, issuers operate without regulatory constraints and do not benefit from direct access to the Fed’s liquidity facilities, but with the added advantage, for some, of complete anonymity.
The combination of stability and privacy has already made stablecoins attractive to both free-market advocates and criminals. But if their use is successfully scaled up, the same features could also make them useful for settling international trade and serving as global reserves, indirectly reinforcing the dollar’s supremacy. Of course, such a scenario would not make the global economy any safer. Since the balance sheets of stablecoin issuers include short-term Treasury bills and short-term collateralized loans (repos), they are vulnerable to sell-offs, just like money-market mutual funds. Consequently, they require a backstop that forces them to rely on the certainty of Fed intervention during crises. This risk may explain Trump’s opposition to a central bank digital currency (CBDC) from the Fed. Such a currency could enhance financial stability, but it would not guarantee transaction privacy, making it unpopular with cryptocurrency advocates and, therefore, commercial banks. Perhaps this is why he has favored a private sector-based crypto policy. The proposal echoes the stance of Nixon, who, as the Bretton Woods system collapsed in the early 1970s, rejected a multilateral solution in favor of a unilateral shift to flexible exchange rates. Regardless of Trump’s reasoning, such a strategy may be the best chance to preserve the dollar’s global position without embracing the multilateral approach he dislikes.
