This report examines whether a city could replace its property-tax revenue with gains from a Bitcoin strategic reserve. We analyze the economic viability of using Bitcoin returns as a budget source, review any municipal pilot projects, outline legal/regulatory constraints, model needed reserve sizes, and discuss risk/benefit and volatility-management strategies.
Economic Viability: Bitcoin vs. Property Taxes
Property taxes are the dominant funding source for local governments (≈72–75% of local tax revenue in the U.S. ). They provide a stable, predictable cash flow each year. In contrast, Bitcoin’s price is highly volatile. For example, analysts note that Bitcoin’s price swings “far exceed the risk tolerance” of typical public portfolios . While Bitcoin has historically generated large gains in bull markets (and is often touted as a potential inflation hedge due to its capped supply ), there is no guarantee of future appreciation. A severe Bitcoin crash (e.g. –50% in a month, as seen in past cycles) could leave a city unable to meet its budget.
- Expected returns vs. reliability: Even if Bitcoin averaged, say, 10% annual growth, funding a city’s $X million budget would require a reserve on the order of 10 × X (see modeling below). In practice Bitcoin returns have varied widely year to year. Cities typically cannot rely on high, consistent crypto returns to match property taxes without large buffers.
- Large principal needed: Because property-tax revenue (e.g. tens of millions per year for a medium city) is large, a Bitcoin reserve would need to be immense. For instance, replacing a $100 million annual tax haul at 10% BTC yield would require ~$1 billion in BTC (≈20,000 BTC at $50k each) – far beyond most city budgets. Lower yields (or crash years) would necessitate even larger holdings.
- Opportunity cost: Funds locked in Bitcoin cannot be used for other municipal needs until liquidated. Locking up public funds in a high-risk asset also raises questions of intergenerational equity and fiscal responsibility.
Given these factors, most experts view Bitcoin at best as a long-term store-of-value or portfolio hedge, not a reliable income stream. Cryptanalysis has noted that a Bitcoin reserve is “not just a financial position [but] a policy signal” . In short, using Bitcoin to replace predictable tax revenue would be a radical experiment: one with the potential for high upside but also severe fiscal risk if prices fall.
Municipal Case Studies and Pilot Projects
Few cities have actually held Bitcoin on their balance sheets, and none have eliminated taxes in favor of crypto gains. Most municipal crypto initiatives to date have been small-scale or symbolic:
Roswell, New Mexico (population ~50,000) became the first U.S. city to hold Bitcoin as a treasury asset . In April 2025, Roswell’s council accepted a donation of ~0.0305 BTC (≈$2.9k) as a “seed” for a Strategic Bitcoin Reserve Fund . The city’s ordinance imposes strict guardrails: a 10-year lockup on all contributions, no spending until the fund exceeds $1 million, and controlled drawdowns (max 21% of the fund every 5 years, only with unanimous council approval) . Any future Bitcoin proceeds are earmarked for social programs (e.g. subsidized water bills for seniors, disaster relief) . Roswell’s experiment is explicitly long-term: it is positioning Bitcoin as a hedge against future inflation and budget shortfalls , not as a day-to-day revenue source.
- Vancouver, Canada: In 2024-25 Vancouver’s mayor championed exploring Bitcoin. He proposed accepting taxes/fees in BTC and even converting a portion of the city’s reserves to Bitcoin “to preserve purchasing power and guard against… inflationary pressures” . This motion explicitly cited Bitcoin’s appeal as a hedge and “viable store of value” . However, the provincial ministry responded that B.C. law currently forbids any municipal investments in crypto: “Local governments in British Columbia… cannot hold financial reserves or make any investments using cryptocurrency, such as bitcoin” . Vancouver’s case illustrates both the allure of crypto (as an inflation hedge) and the legal/political barriers cities face.
- Innisfil, Ontario: In 2019 the town of Innisfil began allowing property taxes to be paid in cryptocurrency . However, this program immediately converts any payment into Canadian dollars via a third-party processor (Coinberry), so Innisfil does not actually hold Bitcoin – it simply offers a new payment method. This shows one incremental step (accepting crypto payments) but not a true reserve strategy.
- Zug, Switzerland: The Canton of Zug famously accepts Bitcoin and Ether for certain tax payments . Taxpayers can pay up to ~CHF1.5 million in crypto (the canton caps payments for risk management) . Again, the crypto is converted to Swiss francs by a vendor at settlement. Zug’s program highlights a city-level use of crypto for tax collection, not as a speculative funding source.
- Fort Worth, Texas: In 2022 Fort Worth became the first U.S. city to mine Bitcoin (using donated rigs) . Over six months they netted only about $1,019 (after electricity costs). The project was intended as a branding/innovation effort rather than a serious revenue stream . It demonstrates civic interest in crypto tech, but it did not meaningfully fund services.
Summary of pilots: To date no city of significant size has replaced traditional taxes with crypto returns. Roswell’s case is the only strategy reserve example (and it’s very small scale so far). Some states (e.g. New Hampshire, Texas) have passed small “SBR” (Strategic Bitcoin Reserve) laws for state funds , but these typically involve limited authorizations (e.g. investing up to 5% of public funds or using seized/unclaimed crypto). In practice, all municipal efforts so far either limit city exposure severely or simply use crypto as a payment option, not a substitute tax stream.
Legal, Regulatory, and Political Considerations
A city’s ability to hold and spend Bitcoin depends heavily on higher-level laws and political factors:
- Statutory investment restrictions: Most U.S. states tightly define how local governments can invest or manage funds. For example, Wisconsin law “narrowly limits” municipal investments and explicitly mandates that all tax payments and municipal debt be in U.S. dollars . In effect, a Wisconsin city cannot legally pay taxes in Bitcoin or invest treasury funds in crypto. Similarly, in British Columbia Canada, provincial legislation bars any local government from using cryptocurrency holdings: “Local governments in [B.C.]… cannot hold financial reserves or make any investments using cryptocurrency, such as bitcoin” . These laws aim to keep public funds in safe, liquid assets.
- Payment vs. holding: Accepting crypto payments is generally easier (as with Innisfil or Zug) since any received crypto can immediately be converted to fiat. But holding crypto as an asset is far more regulated. U.S. federal law does not prohibit government Bitcoin holdings per se, but the IRS treats crypto as property (with capital gains implications). States may require specialized custodians or forbid holding crypto at all (as above). Even if a city council wanted to “buy Bitcoin with tax revenues,” it would likely need explicit state authorization or a charter revision. For example, New Hampshire’s SBR law permits the state treasurer to invest a small percentage of state funds in crypto, but it only qualifies assets with >$500B market cap (i.e. Bitcoin) and even allows using a Bitcoin ETF rather than direct coins . Absent such laws, a city might only collect crypto via donations or seized assets.
- Legal tender requirements: Virtually all jurisdictions require taxes be paid in fiat currency. For instance, Wisconsin statute states that “all money received in payment of any tax… shall be lawful money of the United States” . Thus, a city cannot demand property taxes be paid in Bitcoin. It could, however, authorize a third-party service (like a payment processor or cryptocurrency platform) to accept crypto from taxpayers, instantly convert it to dollars, and remit cash to the treasury . This is how some municipalities allow crypto payments without violating the law.
- Political and public acceptance: Elected officials must weigh public opinion. Crypto in public finance is politically charged. Some leaders (like Vancouver’s mayor) argue a Bitcoin reserve is a fiduciary duty to future generations , whereas critics caution it is a speculative gamble. For example, Vancouver’s initiative prompted legal challenges and public backlash, forcing the mayor to explain himself. In the U.S., Governor vetoes of state crypto-reserve bills (e.g. Arizona’s veto of an SBR appropriations bill in 2025 ) show political caution. Cities have limited fiscal flexibility; any move to rely on Bitcoin would likely face public scrutiny and require robust transparency and safeguards.
- Regulatory compliance: Holding crypto entails regulatory risks (money-transmitter rules, audit requirements, reporting). Cities would need qualified custodians with insured vaults . Without professional expertise, a city is vulnerable to loss of keys, fraud, or compliance missteps. Indeed, one analysis warned that “custody is a foundational risk” for government-held Bitcoin: a breach could cause catastrophic loss or reputational damage .
Financial Modeling: How Big a Reserve?
To illustrate the scale of required reserves, consider a few hypothetical city budgets. As a rough example, a medium city of 100,000 people might collect on the order of $75 million per year in property taxes. Using simple return assumptions, the needed Bitcoin holdings would be astronomical:
| City profile | Population | Prop. Tax (est.) | BTC needed @ 5% annual return (USD) | BTC needed @ 10% annual return (USD) |
| Small City | 50,000 | $30M | $600M (≈12,000 BTC) | $300M (≈6,000 BTC) |
| Medium City | 100,000 | $75M | $1.5B (≈30,000 BTC) | $750M (≈15,000 BTC) |
| Large City | 250,000 | $200M | $4.0B (≈80,000 BTC) | $2.0B (≈40,000 BTC) |
| Metropolis | 500,000 | $400M | $8.0B (≈160,000 BTC) | $4.0B (≈80,000 BTC) |
Table: Illustrative Bitcoin reserves needed to replace annual property-tax income, under different return assumptions (assuming 1 BTC ≈ $50,000).
Even with an optimistic 10% yearly growth, maintaining a $75M tax budget requires ~15,000 BTC (worth ~$750M). A 5% return would need ~$1.5B in Bitcoin. In reality, Bitcoin gains are far from guaranteed, so cities would have to oversize reserves to absorb crashes (or only spend realized gains after holding long enough). For context, a $1.5B Bitcoin hoard is roughly 30,000 coins – a significant fraction of global circulating supply. Such large government purchases could themselves move the market price. These back-of-envelope estimates (based on typical local tax revenues) suggest that using Bitcoin as a primary budget source would require reserves many times larger than what any city has ever allocated to crypto. (By comparison, Roswell’s reserve target is only $1M , purely symbolic.)
Risks, Benefits, and Volatility Management
Risks: The chief risk is volatility. Bitcoin’s value can plunge rapidly: declines of 30–50% in a few months have occurred multiple times in the past decade. Such a crash would force a city to either spend deeper into principal or cut services. Analysts note Bitcoin’s volatility is far higher than what public budgets usually tolerate . Moreover, volatility is structural: unlike equities, Bitcoin routinely has large swings (about 27% of days outperform equity tails ). These swings are the “price you pay” for potential returns .
Other risks include custodial security and operational complexity. Government Bitcoin must be stored in hardened wallets or trusted custodians; any key theft or hack could erase the reserve. Lack of in-house expertise is a hazard: one report emphasized that secure, insured custody solutions are essential to protect public funds . Regulatory crackdowns (e.g. bans, stricter rules) could also suddenly make a city’s holdings harder to liquidate. Finally, political risk is real: a change in administration or public opinion could lead to reversals (cancelling the crypto program, for example).
Benefits: Proponents argue potential upsides: if Bitcoin’s price rises significantly over years, the gains could effectively fund services without raising taxes. Bitcoin is often framed as a hedge against inflation or currency debasement – akin to digital gold . Vancouver’s mayor (for example) cited experts who call Bitcoin “a potential hedge against inflation and currency debasement” thanks to its capped supply . A successful crypto reserve could also signal that a city is forward-looking, possibly attracting fintech investments or innovation-minded businesses. On a symbolic level, supporters say a Bitcoin reserve is a way to “take control” of the city’s financial future .
Volatility management strategies: Some risk can be mitigated through careful rules and active strategies. For instance, Roswell’s ordinance only spends surplus after large growth (first $1M), treating most Bitcoin gains as untouchable principal . In practice, cities could similarly pledge to only use realized profits (not erosion of principal) for budgets. Diversification helps: a city might hold only a portion of its reserve in BTC, with the rest in stable assets or cash. Another approach is to use financial derivatives: institutions routinely use Bitcoin futures, options, or put-selling strategies to harvest premium from volatility and hedge downside . For example, selling cash-secured put options can generate yield and accumulate coins during dips . (Of course, such strategies require sophisticated expertise or outsourcing to specialty managers.)
Finally, cities could hold Bitcoin indirectly (e.g. through a regulated Bitcoin ETF or trust) if allowed by law . This avoids the need for in-house custody but still exposes the city to Bitcoin’s price movements. Transparent governance is key: any Bitcoin reserve should have independent audits, public reporting, and clear rules (e.g. limits on withdrawal) .
Summary: Using cryptocurrency reserves in place of taxes is unprecedented and highly experimental. The potential benefit (big gains, modern image) must be weighed against major risks (volatility, security, legal constraints). Any city considering it would need robust policies: lock-up periods, spending thresholds, secure custody, and perhaps only utilizing modest portions of reserves. As one analysis notes, a Bitcoin reserve “is not just a financial position, it’s a policy signal” . In other words, even if not yet a practical funding mechanism, a Bitcoin reserve can signal a city’s financial strategy (for better or worse).
Sources: Academic and journalistic analyses of government Bitcoin reserves , municipal reports and press releases , and tax-funding statistics were used to compile these findings.