California’s two largest public pension funds, the California Public Employees Retirement System (CalPERS) and the California State Teachers Retirement System (CalSTRS), possess significant holdings in cryptocurrency-related assets despite never directly purchasing Bitcoin or other cryptocurrencies. Collectively, these pension funds have investments in crypto-linked public companies such as Coinbase and Strategy, which, at Bitcoin’s market peak last year, valued their combined investments at over $500 million. Currently, however, those assets have plummeted to less than $300 million.
Despite the sizeable total assets managed by CalPERS and CalSTRS—approximately $900 billion—crypto-linked equities represent a minuscule fraction of their portfolios, roughly 0.03%. The pressing concern is not only the current value of these investments but also the broader implications of integrating crypto risk into pension plans funded by taxpayer dollars.
Public pension systems like CalPERS and CalSTRS are not mandated to seek new laws or explicit authorizations to invest in cryptocurrencies; they often acquire exposure to these assets through traditional public equity investments. For instance, Coinbase operates as a publicly traded cryptocurrency exchange, generating revenue from trading and custody services. Its business is legitimate, but its valuation remains closely tied to the volatility of the cryptocurrency market.
Moreover, the company formerly known as MicroStrategy, now operating as Strategy, has effectively turned itself into a Bitcoin holding vehicle. By financing large Bitcoin purchases through debt and equity issuance, Strategy’s stock trades as a highly leveraged proxy for Bitcoin. This dynamic has been evident as Bitcoin prices fluctuated widely, with prices falling from over $126,000 last October to below $67,000 by early March.
California’s public pension systems are not isolated in their cryptocurrency investments; similar patterns are observed in pension funds across the United States. Many have inadvertently acquired billions in crypto exposure through various investment vehicles, including index funds and active equity strategies, often without clear labeling, obscuring the associated risks from taxpayers and stakeholders.
This situation is particularly concerning because pension benefits for public workers in California carry guaranteed promises. When investments underperform, taxpayers bear the burden of covering unfunded pension liabilities. At the close of the 2024 fiscal year, CalPERS and CalSTRS reported approximately $205 billion in unfunded liabilities, while considering local public pension systems, California’s total pension debt reaches nearly $270 billion. This debt often translates into increased employee contributions or higher taxes, burdening an already taxed populace.
While CalPERS is the largest public pension system in the country with a substantial asset base, its current exposure to cryptocurrency, though sizable in dollar terms, is still relatively insignificant. However, there is potential for this exposure to increase should cryptocurrency continue to be integrated into traditional capital markets.
Investment in digital assets, if approached transparently and systematically, can be rational. Nonetheless, given the unique behavior of crypto-linked assets, both CalPERS and CalSTRS must enhance their transparency and systematic disclosure regarding the risks associated with such investments. The extreme volatility of cryptocurrencies exposes these funds to unique regulatory risks that traditional portfolio models may not adequately address.
To ensure accountability, CalPERS, CalSTRS, and other public pension funds should clearly separate crypto-related risk in asset-allocation reports, rather than obfuscating it within broader equity classifications. Should these pension systems pursue investments in cryptocurrencies and digital assets, such allocations should be limited, fully disclosed, rigorously monitored, and equipped with exit strategies to safeguard taxpayer interests.
