State-level governments entering Bitcoin: Why choose institutional ETFs instead of direct holdings?

Texas is becoming a laboratory for crypto asset allocation. On November 25, Lee Bratcher, chairman of the Texas Blockchain Council, revealed that this eighth-largest economy in the world has invested $5 million to purchase BlackRock’s spot Bitcoin ETF (ticker: IBIT), and will allocate an equivalent amount in the future for on-chain autonomous custody. This move sets a precedent for other state governments.

From ETF to Autonomous Custody: Texas’s Two-Stage Strategy

Texas’s investment is divided into two phases. The first phase involves rapid entry through IBIT, while the second phase will establish autonomous custody infrastructure. This design reflects practical constraints—most regions have yet to establish comprehensive government-level Bitcoin self-custody systems.

The legal foundation supporting this policy is Senate Bill 21, signed by Governor Greg Abbott in June of this year, which officially created the “Texas Strategic Bitcoin Reserve.” The law stipulates that as long as the average market value of Bitcoin remains above $500 billion for 24 months, the State Auditor has the authority to continue increasing the reserve. Currently, Bitcoin is the only crypto asset meeting this market cap threshold.

The reserve system operates independently of the state treasury, clearly defines asset management processes, and has established a supervisory committee to monitor risks. Although the initial $5 million accounts for a tiny fraction of the total state budget, its strategic significance far exceeds its initial scale—this is the government testing whether Bitcoin can become an official reserve tool.

Why All Institutions Are Choosing BlackRock IBIT

The choice of institutional investors is traceable. Although IBIT has been online for only two years, it has become a standard tool for mainstream institutions, with net inflows exceeding $62 billion, making it the largest existing spot Bitcoin ETF.

The logic behind this is straightforward: IBIT offers a familiar regulatory framework and operational environment. For large investors seeking to allocate Bitcoin within known systems, this is sufficient. Harvard University disclosed in Q3 that IBIT is one of its largest U.S. stock holdings; the Abu Dhabi Investment Authority doubled its IBIT position to about 8 million shares; and the Wisconsin State Pension Fund invested $160 million into spot Bitcoin ETFs earlier this year.

The core advantages of IBIT include: custody backed by reputable custodians, simplified reporting processes, and compliance with new fair value accounting standards effective in 2025. These features make it the “default entry point” for government and quasi-government agencies.

Texas’s uniqueness lies in the fact that IBIT is a transitional tool, not the ultimate solution. Once on-chain custody infrastructure is in place (which requires establishing cold wallet standards, key management protocols, and independent audit processes), the second phase of funding will go directly on-chain, leading to entirely different market effects.

The Real Impact of State-Level Purchases

On the surface, a few tens of millions of dollars in government purchases seem insignificant. But they are changing the flexibility of Bitcoin supply curves.

ETF purchases do not alter circulating supply (since trust issuance and redemption cycles do not remove Bitcoin from the market), but “autonomous custody” does—the moment Bitcoin is bought and transferred into cold storage, it disappears from the liquidity pool permanently, reducing the supply available to exchanges and market makers.

More critically, state governments represent a new buyer camp— their trading behavior is countercyclical to the irrational volatility caused by “noise traders,” and their long-term holding policies mean positions are rarely adjusted. Such “stabilizing anchors” do not increase market volatility; instead, they may absorb market fluctuations.

Bitcoin analyst Shanaka Anslem Perera predicts a chain reaction: within the next 18 months, 4 to 8 states are expected to follow Texas, managing a total reserve exceeding $1.2 trillion. Driven by the “follow-the-leader” effect, short-term institutional capital inflows could reach $300 million to $1.5 billion.

States like New Hampshire and Arizona have already passed similar legislation, viewing Bitcoin as a strategic tool to hedge against global financial risks. As new accounting standards eliminate penalties for “market value assessments,” these states can leverage structural surpluses to diversify assets through Bitcoin.

On-Chain Custody Market Implications

Once government-level procurement scales up, the price sensitivity of Bitcoin supply curves will increase significantly. Even if each state’s purchase volume is relatively limited, the addition of institutionalized, low-frequency buyers is enough to alter marginal pricing dynamics. As self-custodied Bitcoin accumulates, tradable liquidity shrinks, while demand remains stable or grows—this is a classic scarcity reinforcement mechanism.

Texas’s experiment is transforming Bitcoin from a purely market asset into a national-level reserve tool.