Texas establishes Bitcoin reserves, why is BlackRock's BTC ETF the first choice?

Written by: Oluwapelumi Adejumo

Compiled by: Saoirse, Foresight News

Texas has officially taken the first step towards becoming the first state in the United States to classify Bitcoin as a strategic reserve asset.

On November 25, Lee Bratcher, the chairman of the Texas Blockchain Council, revealed that this economy, which has a scale of 2.7 trillion dollars and ranks eighth in the world, has purchased 5 million dollars worth of BlackRock's spot Bitcoin ETF (code IBIT).

He added that once the state finalizes the custody and liquidity framework required by the new reserve legislation, the second allocation of $5 million will be used for the direct acquisition of Bitcoin.

These two funds will build a bridge between the current institutional operating model and the future government model of “not only purchasing Bitcoin but also holding Bitcoin.”

Texas creates the first state-level Bitcoin reserve blueprint

Texas initially did not choose to hold Bitcoin directly on-chain, but instead opted for IBIT as a starting point. For large institutional investors looking to allocate Bitcoin within a familiar regulatory and operational framework, IBIT has become the default choice.

The legal basis for this purchase is Senate Bill No. 21 - a bill signed by Governor Greg Abbott this June, officially establishing the “Texas Strategic Bitcoin Reserve.”

According to the bill's framework, as long as Bitcoin maintains an average market value of no less than $500 billion for 24 months, the state auditor has the right to continuously increase holdings of this asset. Currently, Bitcoin is the only cryptocurrency that meets this market value threshold.

The reserve system is independent of the state treasury and clarifies the governance processes related to asset holdings, establishing a consulting committee responsible for risk monitoring and oversight.

Although an initial investment of 5 million dollars is not significant compared to the overall fiscal scale of Texas, the operational logic of this transaction is far more meaningful than the scale of the funds.

Texas is testing whether Bitcoin can be officially incorporated into the category of public reserve tools within a state financial system that has managed a multi-billion dollar diversified fund pool.

Once the relevant operational processes are implemented, the second tranche of funds will be used for “self-held Bitcoin” - this model will have a completely different impact on asset liquidity, transparency, and auditing processes.

Texas is currently designing a “sovereign-level custody” process, rather than adopting the traditional institutional brokerage model. This reserve system will require qualified custodians, cold storage facilities, key management protocols, independent audit mechanisms, and regular reporting systems.

These elements will constitute a replicable template that other states can directly adopt without redesigning their governance structure.

Why did BlackRock's IBIT become the top choice in Texas?

Choosing to enter the Bitcoin market through IBIT does not mean that Texas prefers ETFs over native Bitcoin; it is essentially a workaround based on practical operations.

IBIT has only been launched for two years, yet it has become the most widely held Bitcoin ETF among mainstream institutions. As the largest Bitcoin ETF product currently, its cumulative net inflow has exceeded $62 billion.

(Image description: BlackRock IBIT cumulative net inflow data, source: SoSo Value)

In addition, most regions have not yet established a public sector Bitcoin custody system, and building such infrastructure requires completing a series of complex processes, including procurement, security modeling, and policy approval. Therefore, Texas uses IBIT as a “transitional tool”— to achieve Bitcoin asset allocation through IBIT while improving the permanent reserve structure.

This “detour strategy” has significant reference value because it is highly similar to the layout paths of other large capital players.

Harvard University disclosed that in the third quarter of this year, IBIT has become one of its largest positions in U.S. stocks; the Abu Dhabi Investment Authority increased its IBIT holdings to approximately 8 million shares during the same period, doubling its previous amount; the Wisconsin pension system also allocated over $160 million in the spot Bitcoin ETF sector through IBIT earlier this year.

The trend is very clear: although there are differences in investment objectives, regional attributes, and risk frameworks among different institutions, they all unanimously choose the IBIT tool. The core advantages of IBIT are: it provides custodial services through reputable intermediaries, simplifies reporting processes, and meets the clear accounting requirements under the new fair value rules that will take effect in 2025.

These convenient conditions make IBIT the “default entry point” for public and quasi-public institutions to allocate Bitcoin. The uniqueness of Texas lies in the fact that allocating Bitcoin through IBIT is considered a “temporary transition”.

What impacts would arise if other states follow suit?

The more critical question is: Is this action in Texas a one-off case, or will it become a blueprint for other states to follow?

Bitcoin analyst Shanaka Anslem Perera stated:

“This chain reaction is predictable. In the next 18 months, it is expected that 4 to 8 states will follow suit, collectively controlling reserve funds exceeding $1.2 trillion. In the short term, driven by the 'herding effect,' institutional inflows are expected to reach between $300 million and $1.5 billion. This is not speculation; it is a practical application of game theory that is happening now.”

Currently, states with similar political stances such as New Hampshire and Arizona have enacted laws related to Bitcoin reserves — they view Bitcoin as a strategic asset to hedge against risks in the global financial system.

In the future, more states may join this trend: after the new accounting standards eliminated the previous punitive clauses of “mark-to-market” valuation, these states can utilize structural surplus funds to allocate Bitcoin and achieve asset diversification.

In addition, the involvement of state-level governments in the Bitcoin market goes far beyond mere “symbolism.” ETF purchases will not change the circulating supply of Bitcoin, as the trust structure does not remove Bitcoin from the liquidity market when issuing and redeeming shares.

On the other hand, “self-custody” has the opposite effect: once Bitcoin is purchased and transferred to cold storage, it exits the tradable circulation pool, resulting in a decrease in the supply of Bitcoin available to exchanges and market makers.

If Texas expands its Bitcoin reserve scale from the initial 10 million USD, the aforementioned differences will have a significant impact. Even if the state-level demand is not large, it will introduce a new class of buyer participants—these participants' behavior is counter-cyclical to that of “noise traders” (referring to investors or trading entities in the financial market who trade not based on rational analysis, real market information, or fundamental logic such as company earnings or macroeconomic data, but are driven by irrational factors) and will not frequently adjust their holdings.

This kind of influence is more like a “stability anchor” rather than a source of volatility. If other states adopt similar policies, the elasticity of the Bitcoin supply curve will further decrease, and price sensitivity will increase.