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Key takeaways

In the news

MicroStrategy was added to the Nasdaq-100 Index, which led to an immediate rise in MicroStrategy’s  share prices. The Nasdaq-100 Index was rebalanced based on market capitalization at the end of November. Equities that are added also have to meet liquidity criteria and specific free-floating share counts. MicroStrategy did make a significant bitcoin purchase as well, buying 15,350 bitcoin for US$1.5 billion. In the index, MicroStrategy serves as a proxy for bitcoin exposure. This exposure supports the strategic focus of the Nasdaq-100 Index on cryptocurrencies investments as part of its tech-heavy target.1

The Texas House of Representatives introduced legislation to establish a strategic bitcoin reserve, which would act as a test case for the US Treasury.  Under the proposed legislation, the state would accept taxes, fees and donations in bitcoin that would be held for at least five years, thus creating a strategic bitcoin reserve. There are no provisions for the state to purchase bitcoin directly in the initial proposal. The legislation serves dual purposes of strengthening the state’s financial stability while establishing it as a leader in bitcoin innovation. Texas is the second-largest economy in the United States and the eighth largest economy in the world.2

The state of Florida will consider investing in bitcoin for the state pension fund, committing up to US$1.85 billion of members’ contributions in order to diversify its investment portfolio. This move was announced by the head of the Florida Blockchain Business Association, Samuel Armes, and backed by state leaders. The Florida pension fund can utilize 1% of its holdings to establish a bitcoin reserve, providing a dual opportunity to diversify and gain exposure to the growing cryptocurrency market. It is noteworthy that Florida has already made investments in bitcoin and in cryptocurrency-related assets via the Pension Fund, with US$800 million in crypto investments.3

Vancouver, Canada is the latest government entity to integrate bitcoin into its financial processes. Vancouver approved a motion during a council meeting to become a bitcoin-friendly city. The motion called for integrating bitcoin into the city’s financial strategies, accepting bitcoin as payment for taxes and fees, and converting a portion of the reserves into bitcoin.4

Endnotes

  1. Source: “MicroStrategy Joins Nasdaq-100 and Buys $1.5B in Bitcoin: Shares Climb on Dual Milestones.” Yahoo!finance. December 16, 2024.

  2. Source: “Texas House Introduces Bill to Establish a Strategic Bitcoin Reserve.” CNBC: Crypto World. December 12, 2024.

  3. Source: “Bitcoin State: Florida Pensions Take $1.85 Billion Leap Into Crypto.” Bitcoinist. December 2024.

  4. “Vancouver’s City Council Greenlights Exploring Bitcoin in Municipal Finance.” The Block. December 11, 2024.

 

WHAT ARE THE RISKS?

All investments involve risks, including possible loss of principal.

Blockchain and cryptocurrency investments are subject to various risks, including inability to develop digital asset applications or to capitalize on those applications, theft, loss, or destruction of cryptographic keys, the possibility that digital asset technologies may never be fully implemented, cybersecurity risk, conflicting intellectual property claims, and inconsistent and changing regulations. Speculative trading in bitcoins and other forms of cryptocurrencies, many of which have exhibited extreme price volatility, carries significant risk; an investor can lose the entire amount of their investment. Blockchain technology is a new and relatively untested technology and may never be implemented to a scale that provides identifiable benefits. If a cryptocurrency is deemed a security, it may be deemed to violate federal securities laws. There may be a limited or no secondary market for cryptocurrencies.

Digital assets are subject to risks relating to immature and rapidly developing technology, security vulnerabilities of this technology, (such as theft, loss, or destruction of cryptographic keys), conflicting intellectual property claims, credit risk of digital asset exchanges, regulatory uncertainty, high volatility in their value/price, unclear acceptance by users and global marketplaces, and manipulation or fraud. Portfolio managers, service providers to the portfolios and other market participants increasingly depend on complex information technology and communications systems to conduct business functions. These systems are subject to a number of different threats or risks that could adversely affect the portfolio and their investors, despite the efforts of the portfolio managers and service providers to adopt technologies, processes and practices intended to mitigate these risks and protect the security of their computer systems, software, networks and other technology assets, as well as the confidentiality, integrity and availability of information belonging to the portfolios and their investors.

Any companies and/or case studies referenced herein are used solely for illustrative purposes; any investment may or may not be currently held by any portfolio advised by Franklin Templeton. The information provided is not a recommendation or individual investment advice for any particular security, strategy, or investment product and is not an indication of the trading intent of any Franklin Templeton managed portfolio.