Despite never purchasing a single Bitcoin or cryptocurrency directly, California’s two largest public pension funds hold hundreds of millions of dollars in volatile crypto-related assets. The California Public Employees Retirement System (CalPERS) and the California State Teachers Retirement System (CalSTRS) disclosed holdings in crypto-linked public companies, Coinbase and Strategy. At Bitcoin’s market peak last year, those investments were worth over $500 million in total, but they are currently worth less than $300 million.
Compared with nearly $900 billion in total assets managed by CalPERS and CalSTRS, the share of crypto-linked equities in their investment portfolios is extremely small, about 0.03%. However, what is most concerning is not the size of the investment or the current losses, but how crypto risk has become part of the portfolios of public pension plans backed by taxpayer dollars.
Public pension systems do not need new laws or explicit authorization to invest in crypto. They routinely acquire it through conventional public equity investments. Coinbase, for example, is a publicly traded cryptocurrency exchange that generates revenue from trading, custody, and other services. While it is a legitimate operating company with assets and cash flow, its valuation and risk profile remain tightly linked to crypto market performance.
The company formerly known as MicroStrategy, now Strategy, goes even further. Though classified as a software firm, Strategy has effectively transformed itself into a Bitcoin holding vehicle, financing large Bitcoin purchases through debt and equity issuance. As a result, its stock functions as a highly leveraged proxy for Bitcoin exposure, as evidenced by CalPERS’ investment. Bitcoin was trading at over $126,000 last October but was under $67,000 at the start of March. Similarly, Strategy was trading at over $450 last year as Bitcoin soared but went below $130 last week.
Pension plans also have exposure to crypto through venture capital and private equity funds that are explicitly mandated to invest in digital-asset companies. However, these holdings are rarely labeled as crypto-related in public disclosures. Instead, they are often reported simply as public or private equities, leaving taxpayers and other stakeholders with an incomplete understanding of volatility and risks.
California’s public pension systems are not outliers in their crypto investments. Other pension funds across the country have also accumulated billions in crypto exposure, whether deliberately or incidentally, through index funds, active equity strategies, and crypto-linked exchange-traded products.
This matters because public pensions are not like typical investors. Pension benefits promised to public workers in California are guaranteed. When risky investments underperform, taxpayers are required to pay for unfunded pension liabilities.
At the end of the 2024 fiscal year, CalPERS and CalSTRS together reported about $205 billion in unfunded liabilities. When including California’s numerous local public pension systems, the total pension debt Californians are responsible for reaches nearly $270 billion. This public pension debt must be offset by higher employee contributions, which governments rarely ask for, by more tax increases on already overtaxed Californians, or by public service cuts.
CalPERS is the largest public pension system in the country. Given its massive size, its current hundred-million-dollar crypto exposure is negligible, but it is likely to grow in the coming years if crypto succeeds in its intended integration with traditional capital markets. Investing in digital assets, whether directly or through firms that service the crypto ecosystem, may be defensible if it is deliberate, transparent, and explicitly categorized.
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If California’s pension systems invest in cryptocurrencies and other digital assets, allocations should be small, fully disclosed, subject to strict custody and stress testing, and have clear exit strategies to protect taxpayers.
Mariana Trujillo is managing director of government finance at Reason Foundation and co-author of the study, “U.S. public pension and trust fund investment in digital assets.”
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