Purpose and Objectives: A municipal Bitcoin reserve would serve long-term fiscal resilience and innovation goals. Governments increasingly view Bitcoin as a potential portfolio diversifier and inflation hedge . Adding a modest Bitcoin allocation could reduce reliance on traditional revenues (e.g. property or sales taxes) and position Culver City as a forward‑looking, tech-friendly city. For example, Rio de Janeiro (Brazil) announced placing 1% of its treasury into crypto to hedge inflation and boost its “crypto-friendly” image . Roswell, New Mexico—a pioneer in local crypto policy—pledged its new Bitcoin reserve to fund senior assistance and disaster relief , illustrating how a crypto fund can support civic needs. In Culver City’s case, objectives might include:
- Financial Resilience: Build an alternate store-of-value to complement USD assets, aiming to preserve purchasing power against inflation .
- Diversification: Reduce portfolio concentration in traditional assets (cash, bonds) by allocating a small percentage (e.g. <1–2%) to Bitcoin, which some analysts see as uncorrelated and “digitally native” .
- Innovation Leadership: Signal commitment to technological innovation and attract blockchain businesses (similar to Miami’s crypto initiatives) without using general fund dollars.
- Emergency Preparedness: Reserve funds for future crises or social programs (as Roswell intends for water bills and disaster aid ), creating a “rainy-day” buffer outside the normal budget.
Each objective should be balanced against risks (noted by GFOA and others) such as extreme volatility and the fact that cryptocurrency is not legal tender . By clearly defining use cases (e.g. senior subsidies, public health) and maintaining strict controls, the city can pursue these goals prudently.
Reserve Size and Investment Strategy
The reserve should start as a small pilot allocation, not a major share of city funds. For example, a policy proposal for Los Angeles recommends “a modest allocation (e.g. 1% or less of reserves)” to Bitcoin . Culver City’s General Fund (FY 2024–25 revenue ~$178 M ) suggests an initial Bitcoin fund on the order of $1–3 million (≈1% of reserves) as a conservative one-time buy. This avoids overexposure while still being meaningful. Subsequent purchases should follow a dollar‑cost averaging (DCA) approach to mitigate timing risk: for instance, setting aside a fixed amount of USD (e.g. $X per month) to convert to Bitcoin at regular intervals. DCA “removes the uncertainty of market timing” and can lower average cost in volatile markets . This strategy contrasts with a lump‐sum buy, which could incur major gains or losses if timed poorly. A blended approach is possible: e.g. begin with a small lump-sum purchase when Bitcoin dips, then continue with periodic buys.
The exact target size can evolve. Some planners cite an ultimate endowment goal (e.g. a permanent fund sized for multi-decade impact) and use a spending rule. For example, one proposal sets a target fund of ~$340 M to generate ~$17 M/year at 5% draw . Culver City’s plan could include a spending policy, such as limiting annual withdrawals to ≤3–5% of the fund’s average value (the “Permanent Fund” model ), preserving capital growth. Any use of proceeds should be rules-based and transparent (see below).
Governance and Ownership
Because California law currently forbids local governments from investing in cryptocurrencies (Gov. Code §53601 allows only enumerated securities) , a Bitcoin reserve cannot simply be held in the City treasury under existing policy. Two main workarounds are:
- Public Foundation or Trust: Establish an independent 501(c)(3) “Bitcoin Reserve Foundation” to hold Bitcoin. The City would not use taxpayer funds to buy crypto; instead, the Foundation solicits donations or grants in USD/crypto and invests them into Bitcoin. The Foundation then makes periodic USD grants to the City. This model (suggested in a draft Culver City ordinance) creates a clear legal firewall . The Foundation’s charter would mandate qualified custody (multisig, insurance), regular audits and reporting. Guardrails (e.g. multi-signature wallets, well-known custodians) must be codified. The City uses only the USD proceeds, remaining “compliant while accelerating innovation” . This resembles endowment or sovereign wealth fund governance.
- Private/Public Partnership: Alternatively, the City could contract with a specialized asset manager or custodial bank (e.g. a regulated crypto custodian) to hold Bitcoin on its behalf. California’s restrictions make this complex unless state law changes, but in theory a non-profit partnership or municipal corporation could hold the asset. Any such entity would need its own governance (board oversight, clear audit roles) and possibly legislative approval.
Ownership model comparison:
| Option | Management | Advantages | Challenges |
| City‐managed (Treasury) | City Treasurer/Finance Dept | Direct control, uses existing structures | Currently illegal (Gov. Code §53601), no crypto expertise; risk to public funds |
| Independent Foundation/Trust | Board (mix of City, philanthropic leaders) | Compliant with law, attracts donors, endowment discipline | Separate entity setup, needs fundraising, coordination with city |
| Private custody/manager | External custodian or manager firm | Professional expertise, insured custody possible | Requires clear contracts, oversight; may still need enabling law |
In each case, the City Council must define oversight. For example, a “Founders Council” of local leaders (business, tech, philanthropy) could guide the Foundation’s board, as suggested by one proposal . Regardless of structure, the governance framework should include multi-stakeholder representation, fiduciary duties, and clear lines of responsibility.
Time Horizon and Risk Tolerance
A Bitcoin reserve is inherently long-term. The City should view holdings as a multi-year (≥10-year) endowment, not a short-term investment. Roswell’s ordinance, for instance, locks all Bitcoin donations for at least 10 years . Culver City could adopt a similar vesting rule (e.g. no Bitcoin sales or conversions for at least a decade) to ensure intergenerational benefit. The volatility of Bitcoin means short-term accounting losses are likely. Thus, funds drawn from the reserve for use should follow strict “withdrawal rules.” One approach is the Permanent Fund Model: e.g. limit annual spending to 3–5% of a trailing average of fund value . (One draft plan caps City grants at 5% of five-year trailing assets, dropping to 3% during downturns .) In practice, the City should set a conservative draw rate and lower it if markets fall (for example, suspend draws if Bitcoin value is >20% below peak ).
In terms of risk tolerance, municipal funds are highly risk-averse. Bitcoin’s price can swing ±20% or more in weeks, so the City must accept high volatility for potentially higher long-run return. Only a small percentage of city assets should be exposed. If $2 M were invested and Bitcoin later crashed 50%, the City should be prepared (but the damage is contained). In all communications, emphasize that this allocation is experimental and cautious. Coupling the reserve with nondollar obligations (e.g. stipulating it funds a specific program) can make the risk more palatable.
Legal and Regulatory Considerations
California and federal rules impose constraints:
- State Law: By default, CA Gov. Code §53601 restricts permissible investments for city funds – cryptocurrencies are not on the list . The GFOA explicitly warns that crypto is “typically unauthorized by state laws as an allowable investment” for government funds . Thus, direct purchase of Bitcoin with city treasury money is currently prohibited. The Foundation/Trust structure (discussed above) is designed to comply with this. Any change to allow direct investment would require legislative action.
- Federal Compliance: Bitcoin is not legal tender (only USD is) . The City cannot accept taxes or fees in Bitcoin unless state law is changed. Income to the reserve (e.g. donor contributions) must comply with IRS rules. Bitcoin is treated as property for tax purposes: gains/losses should be recorded and donations reported. The Foundation should consult tax counsel and possibly register as a Digital Asset Custodian under CA law (AB 1052) if it’s holding Bitcoin for others .
- Accounting Standards: Under current accounting guidelines, Bitcoin is likely a non-financial intangible asset. Recent guidance (FASB ASC 350-60) requires crypto intangibles to be measured at fair value after acquisition . Culver City’s auditors would likely require quarterly mark-to-market valuations and disclosure of unrealized gains/losses. This implies fluctuating entries on the balance sheet; transparency is key. (Note: GASB is monitoring digital assets and may issue gov’t-specific guidance, but none yet.)
- Other Regulations: Ensure compliance with anti-money-laundering (AML) and OFAC sanctions if the Foundation accepts crypto. Use licensed exchanges/custodians to convert crypto/fiat. Follow any SEC/CFTC rules on custody. If fund proceeds go to seniors or disaster relief, ensure they comply with state grant accounting rules.
In sum, the legal environment advises extreme caution: GFOA’s stance is for governments to abstain from crypto investments . Culver City’s plan must therefore be structured as a philanthropic partnership with built-in legal safeguards and strong external counsel.
Security and Custody
Safeguarding the Bitcoin is paramount. Options include:
- Third-Party Custodian: Use a professional, insured crypto custodian (e.g. Coinbase Custody, Fidelity Digital Assets, BitGo, Anchorage) which offers multi-signature hardware security modules (HSMs) and insurance. The Foundation’s multi-sig keys could be split between the custodian and independent trustees. A compliant custodian will provide SOC2 audits, rigorous KYC on counterparties, and protects against theft and technical failures .
- Self-Custody (Multi-Sig): If holding keys directly, use a multi-signature wallet requiring several independent keys (for example, one key held by the City Treasurer’s office, one by an outside auditor/trustee, one by a bank). Hardware wallets (cold storage, never internet-connected) should store keys offline. Copies of keys must be secured in geographically separated bank vaults or with trusted third parties. All key holders should use tamper-evident devices. Procedures must exist to rotate keys or access funds if a custodian is compromised.
Best practices (from both industry and the Roswell case) include: insured storage, regular attestations of holdings by a third party, and segmented access controls . For example, Roswell’s plan calls for “insured, compliant custodians to protect private keys” and quarterly attestations . Culver City should similarly require multi-layered security: strong encryption, limited online exposure, and insurance against theft/loss of keys. Technical audits by reputable firms (e.g. KPMG, Deloitte, specialized crypto auditors) should be mandated. The City’s IT/CISO can also review policies for any indirect connections (e.g. using city IT staff for backups could be a risk).
Finally, document a loss mitigation plan: if keys are lost or Bitcoin is stolen (due to hack or inside malfeasance), legal recourse is limited. Therefore, insurance and multiple independent signers (so no single point of failure) are critical.
Transparency and Accountability
Given public scrutiny, the reserve must be administered with high transparency:
- Regular Reporting: Publish quarterly updates showing fund value, asset allocation, and inflows/outflows. An on‑line dashboard could display current NAV, number of BTC held, recent transactions, and custodial attestations (signed statements from the custodian verifying holdings) . Roswell’s ordinance explicitly requires quarterly NAV and custody attestations ; Culver City should do likewise.
- Audits: Conduct an annual independent audit of the Bitcoin reserve (via the Foundation). The audit should reconcile blockchain records with the financial statements, and verify adherence to the spending policy. Publish the audit report publicly. The draft Culver City plan calls for an annual audit of the Foundation and publishing the results .
- Public Oversight: City Council should review reserve performance at least annually in a public meeting. Ideally, form a citizen advisory committee (including a financial expert) to oversee the crypto policy. All City grants from the reserve should flow through existing budgeting processes (treated as USD grants under current law ) so they receive normal legislative oversight.
- Governance Documentation: Codify all rules in an ordinance or charter: investment policy, spending rule, custodial policy, and emergency provisions (e.g. what to do in a cyberattack). Require any policy changes to be approved by the Council or by referendum. Publish the Foundation’s bylaws and conflict-of-interest policies for its board members.
By keeping accounting open, and perhaps even letting citizens see blockchain transfers (blockchain is public), the city can build trust. In all communications, emphasize that audited financial controls apply just as for any city fund. As one analysis noted, rigorous mark-to-market accounting and public disclosure are essential to “uphold community trust” in a municipal Bitcoin fund .
Case Studies and Precedents
Several cities have moved (or signaled plans) to hold or use Bitcoin:
- Roswell, New Mexico (USA): In 2025, Roswell became the first U.S. city to establish a Bitcoin reserve. It received a donation of 0.0305 BTC (~$2,900) as seed funding . The city council locked the reserve for 10 years and set strict drawdown rules (max 21% of the fund every 5 years, with unanimous approval) . Proceeds are earmarked for senior water-bill subsidies and disaster relief . This model shows a cautious, donation-based approach with heavy guardrails.
- Rio de Janeiro (Brazil): In 2022–2023, Rio’s mayor announced a plan to invest 1% of the city’s treasury reserves in crypto (focusing on Bitcoin) . The goals were to hedge against Brazil’s inflation, build trust in blockchain, and create a tech-hub image. Rio also offers tax discounts (up to 10%) for payments in Bitcoin . This high-profile move demonstrates how a large city uses a small crypto allocation as both a financial strategy and economic-development signal .
- Fort Worth, Texas (USA): Notably, Fort Worth ran a pilot program in 2022 mining Bitcoin using donated hardware at City Hall . The 6-month effort produced only about $1,000 worth of BTC, but served as a symbolic step toward crypto adoption . This project illustrates the use of city resources (electricity, space) for crypto generation, albeit modestly.
- Miami, Florida (USA): Miami has embraced crypto culture. Under Mayor Suarez, the city launched “MiamiCoin” (a city-backed token) and earned over $5 million in one month from mining it . City commissioners accepted these proceeds (in the Stacks token) for municipal use. While not Bitcoin directly, Miami’s experience shows both opportunity (new revenue streams) and risk (sharp token price drops) when cities experiment with crypto . Miami also piloted paying employees in Bitcoin . Key lesson: robust pilot rules and clear public messaging are vital.
- Zug (Switzerland): The Canton of Zug (“Crypto Valley”) allows residents to pay taxes in Bitcoin and Ether (converted at point-of-payment) . The city also introduced a proprietary digital currency (LVGA). While not a reserve fund, Zug’s policy underscores government acceptance of crypto transactions under strict regulatory oversight .
- El Salvador (Nation): In 2021, El Salvador made Bitcoin legal tender and amassed ~6,000 BTC for its national treasury . Initial tourism gains were seen, but volatility and IMF pressure led to scaling back. This case shows how even a country hedging with Bitcoin can face macroeconomic/legal challenges .
These examples suggest some guiding principles for Culver City: start small (1% or less of reserves), tie crypto funds to public benefits (water bills, disaster relief, etc.), enforce strict holding periods, and complement the move with broader innovation goals . They also show that while a Bitcoin reserve is unprecedented at a city scale, carefully designed frameworks (dedicated funds, legal earmarking, etc.) can make it feasible.
Sources: This plan draws on public policy reports, city budget documents, and municipal finance best practices. Key references include government websites and analyses (e.g. Culver City budget reports ), expert proposals , and recent news about Bitcoin adoption by cities . All recommendations are subject to legal review and public approval before implementation.