Tennessee lawmakers are actively considering groundbreaking legislation, House Bill 1695, officially known as the Tennessee Strategic Bitcoin Reserve Act. This measure, introduced by Rep. Jody Barrett (R–Dickson), aims to empower the State Treasurer to strategically invest a portion of the state's public financial reserves into bitcoin. If passed, Tennessee would join a select group of U.S. states formalizing bitcoin holdings through statute, marking a significant step in how public finances are managed.

A primary driver behind this legislative push is the concern over inflation. The bill explicitly states that rising prices diminish the real purchasing power of assets held within the state's general fund, revenue fluctuation reserve, and other financial pools. Bitcoin is presented in the legislation as a decentralized digital commodity characterized by its fixed supply and global liquidity. The proponents argue that such an asset can be a valuable tool for a fiduciary investor to enhance long-term, inflation-adjusted returns, likening it to gold as a hedge against inflationary pressures. This move aligns Tennessee with a growing trend among U.S. states, with South Dakota and Kansas also introducing bills for allocating public funds to bitcoin, and Rhode Island and Florida exploring legislation to study or integrate bitcoin into their state balance sheets.

Under the proposed act, the State Treasurer would be authorized to allocate funds from the general fund, the revenue fluctuation reserve, or other state funds specifically approved by lawmakers. The bill establishes strict limits on bitcoin exposure, capping it at 10% of each eligible fund at the time of purchase. Furthermore, annual purchases would be restricted to 5% per fiscal year until the maximum cap is reached. Notably, the legislation allows passive price appreciation to push holdings above this 10% cap without mandating sales. A crucial aspect of the bill is its specificity: investments are strictly limited to bitcoin, explicitly barring allocations to other cryptocurrencies or digital assets. The state would have the flexibility to hold bitcoin directly, through a qualified custodian, or via an exchange-traded product solely tied to bitcoin, with all exposure types counting towards the same established cap.

The Tennessee Strategic Bitcoin Reserve Act places a strong emphasis on robust custody standards to safeguard these digital assets. Any approved "secure custody solution" must ensure that private keys are stored in encrypted hardware, kept offline, and maintained in at least two distinct geographical locations. Access to these holdings would necessitate encrypted channels and multi-party authorization. Mandatory audit logs would be maintained, and custody systems would be subject to annual third-party code reviews and penetration tests. Additionally, providers would be required to have comprehensive disaster recovery plans in place.

Transparency is another core feature embedded within the proposal. Every two years, the State Treasurer would be required to publish a detailed public report. This report would itemize the amount of bitcoin held, its dollar value at both the time of purchase and at the end of the reporting period, and a summary of all transactions. To ensure public verifiability, the report would also include a cryptographic proof allowing third parties to independently verify on-chain balances. Summaries of security assessments would also be made available upon request.

Beyond investment, the bill also allows the Treasurer to establish a voluntary program for accepting bitcoin for taxes, fees, or other state obligations. Any bitcoin received through this program would be immediately transferred to the general fund and recorded at its current market value, with state agencies being reimbursed in U.S. dollars. Supporters of the bill, such as David Birnbaum, president of the Tennessee Bitcoin Alliance, assert that this structure aligns with Tennessee’s broader, well-regarded approach to asset management, which oversees over $132 billion in assets, including one of the nation's top public pension systems. Birnbaum highlights bitcoin's low correlation with other asset classes as offering valuable diversification against risks not hedged by traditional assets.

Looking ahead, if the act is approved, it would take effect on July 1, 2026. The Treasurer is directed to publish a comprehensive bitcoin investment policy by January 1, 2027. A full performance and risk review of the program would then be due by October 1, 2032, at which point lawmakers would convene to determine whether to continue, revise, or repeal the program based on its efficacy and impact.