Reason Foundation Addresses Public Pension Crypto Exposure

February 25, 2026

Bitcoin was once considered to be a fringe digital experiment, seen by most institutions in its first years (2009–2013) as a niche technology. Now, however, institutional investors appear to increasingly view Bitcoin and other cryptocurrencies as approaching the characteristics of a distinct investable asset sub‑class. Furthermore, recent media coverage as well as ongoing policy discussions – particularly at the state level — have raised the amount of attention being paid to public pension plans, Bitcoin, and cryptocurrencies in general. Most recently, the Reason Foundation — a long-time critic of public pensions and the defined benefit (DB) structure — has weighed in, releasing a lengthy report earlier in February discussing what it views as a prudent fiduciary framework for public pension digital-asset exposure – which for once may not actually be completely unreasonable. While this increased attention may be warranted to some degree, it must nevertheless not be allowed to detract from the important fact that public pension exposure to cryptocurrencies remains very modest and is overwhelmingly indirect. This FYI provides a rudimentary background to help decision-makers hopefully better understand the essentials of Bitcoin and cryptocurrency; a broad discussion of public pensions’ modest and indirect portfolio exposure to crypto; and a third part that discusses the Reason Foundation paper in somewhat more detail and examines what may lie ahead.

Background on Crypto

Bitcoin was created in 2009 by an anonymous figure known as Satoshi Nakamoto, and is generally defined (Sources: Congressional Research Service and Investopedia) as:

A decentralized digital asset – meaning no central issuer and no single gatekeeper for transactions. Governance emerges from protocol rules and participant consensus rather than from a bank or government;
operating on a public blockchain — a public blockchain is a shared ledger – a sort of record book that is not kept in one office or on one server, but instead is copied onto thousands of computers, worldwide, making entries transparent and tamper‑resistent. When people send Bitcoin (or any blockchain‑based asset), those transactions are collected into a block. Each such block is linked to the previous one, and every block contains a list of transactions; a timestamp; and a cryptographic link to the block before it. This creates a chain of blocks, hence the term “blockchain;”
allowing users to transfer value without relying on a central bank or financial intermediary in order to do so — Crypto transactions allow users to transfer digital assets such as Bitcoin directly between blockchain “digital wallets” without routing through banks or clearinghouses, because the blockchain technology records and verifies the transfer, enabling secure, peer-to-peer value exchanges. [A “digital wallet” can be either (1) a software application like an app, downloadable to a smartphone, tablet, or computer and typically free directly from the official developer websites or a device’s app store, or (2) a physical device often resembling a USB thumb drive that allows storage entirely offline. Digital wallets allow the secure storage and management of an individual’s cryptocurrency assets, including the “private keys” needed to authorize transactions. At the risk of “TMI,” a private key is a long (256-bit code), randomized string of letters and numbers, which all crypto wallets (the device, not the wallet manufacturer) generate. Each trade/transaction must be digitally signed with the user’s private key.]

Why was bitcoin – and, by extension, cryptocurrencies — created? What is their purpose?

Bitcoin and other cryptocurrencies were originally conceived as a peer-to-peer electronic cash system, designed to allow online payments to be sent directly from one party to another without going through a central financial institution. Bitcoin emerged as a direct response to the 2008 global financial crisis, which had severely damaged public trust in traditional banking and government-controlled “fiat” currencies – which are money that has value simply because a government decrees it to be legal tender and not because it is backed by a physical commodity like gold or silver.

Nakamoto is said to have solved the “double spending” problem, which is the inherent flaw in digital cash where a single digital token — being effectively just a computer file — can be easily duplicated and spent more than once. He effectively prevented digital money from being copied by using a decentralized ledger (the blockchain) and a “proof-of-work” (PoW) consensus mechanism.

OK, take a deep breath. A “proof-of-work (PoW)” consensus mechanism is a decentralized methodology used by blockchain networks like Bitcoin to verify transactions and add new blocks to the digital ledger without a central authority. It requires participants, called “miners,” to spend significant computational effort to solve complex cryptographic puzzles, which serves as “proof” that they have invested real-world resources to secure the network. It is a lot more complicated, but in this writer’s view, this is probably about as clear as it gets.

Also, due to the constant “guessing” by millions of computers trying to solve these puzzles – because the first to find the solution receives newly mined cryptocurrency as well as transaction fees associated with the new block in the block chain that has been produced as a result of the solution – PoW consumes vast amounts of electricity. For example, as of 2026, Bitcoin mining consumes amounts of electrical energy comparable to the energy usage of medium-sized countries!

While originally intended for daily transactions, Bitcoin has evolved into a different role over the last 17 years. Due to its fixed supply, it is now widely viewed as “digital gold” — a tool for long-term wealth storage and a hedge against inflation – and has become an asset, with its value driven by market sentiment and digital scarcity rather than underlying cash flows or industrial use.

But it also still has technical utility as a tool for global settlements, providing a way to transfer value across borders 24/7 without needing a bank, “a service that sovereign wealth funds and millions of individuals worldwide now use,” Microsoft Copilot points out. In short, it is both a technological tool that enables censorship-resistant payments and a speculative asset that has become a permanent fixture in modern investment portfolios.

As noted above, a very important feature of Bitcoin is that its supply is fixed — only 21 million bitcoins will ever exist. This supply cap is hard-coded into Bitcoin’s software, making it a “hard cap.” That is, the 21 million limit is a mathematical consequence of the software’s code, not a single rule that states “stop at 21 million.” Production is enforced by a “halving” mechanism that is automated, decreasing by half the issuance of new Bitcoins roughly every four years to ensure no more than 21 million can ever be produced (“mined” is the term used), and every computer running Bitcoin software independently verifies that this limit has not been exceeded.

As of February 23, 2026, there were approximately 19,993,825 Bitcoins in circulation. This represents roughly 95.2 percent of the total 21 million supply cap, which will not reach its limit until the year 2140.

While Bitcoin is not the only cryptocurrency to have a limited supply – for example, Cardano, a decentralized blockchain platform, has a fixed limit of 45 billion tokens — it is well to note that Bitcoin’s two (generally-acknowledged) main competitors, Solana and Ethereum, are not similarly limited. Ethereum has no fixed maximum supply while Solana operates with a fixed annual inflation rate that decreases over time, but it does not have a permanent ceiling on the total number of tokens.

One last point to keep in mind: as noted, trading in Bitcoin occurs 24/7 across hundreds of global exchanges. And its value is determined entirely by market demand, with price swings of 10 to 20 percent in a single day not unusual.

In short, Bitcoin is a speculative, non‑cash‑flow‑producing digital asset whose risks, regulatory treatment, and market behavior differ significantly from traditional investments. However, this cannot be said of all cryptocurrencies. While many may share Bitcoin’s lack of physical form and reliance on market demand, the crypto market now includes distinct categories where value is increasingly tied to cash flows and real-world assets. For example, as Microsoft Copilot explains, some cryptocurrencies “essentially function like decentralized service providers or tech companies.” Ethereum, for example, is “often valued by its network activity, and it generates ‘cash flows’ in the form of transaction fees.”

Solana’s value is increasingly driven by acting as the operating system and accounting ledger for very large physical networks, known as “Decentralized Physical Infrastructure Networks,” which use Solana’s technology to coordinate thousands of independent hardware owners, for example, into a single, functional utility. The company “Helium” — a new global wireless network that replaces cell towers with small devices called Hotspots, “hosted” by businesses and individuals, that are supposed to help provide connectivity and expand coverage — is an example.

Then there are asset-backed tokens that explicitly connect digital tokens to physical things. These are referred to as stablecoins, such as Tether or USD Coin, which are a specific type of cryptocurrency designed to maintain a stable one-to-one value with the U.S. dollar, backed by physical reserves of U.S. dollars and Treasury bills held in traditional banks.

In summary, this only scratches the surface of cryptocurrency’s complex existence and use which is changing exponentially – i.e., increasing at an ever-accelerating rate. Hopefully, this introduction will be of use in providing a basic understanding of some of the key aspects of crypto as an asset.