Arizona Senate Advances SB 1649 to Build Seized-Crypto Reserve Targeting BTC, XRP, Stablecoins, and NFTs

Arizona is testing a different path to on-chain treasury management: turn seized digital assets into a state-run reserve and professionalize custody and lending around them. Senate Bill 1649 cleared the Senate Finance Committee in a 4–2–1 vote on February 16 and passed the Senate Rules Committee on February 23. It was placed on the consent calendar without objection and secured support from the Senate Republican Caucus, setting up a full Senate floor vote—despite Bitcoin sliding nearly 5% the day the committee advanced it and the broader crypto market down 3.8%. By February 24, Bitcoin fell below $64,000, off roughly 5% in 24 hours and 28% over the past month, per CoinGecko.

The core design - Scope: SB 1649 creates a Digital Assets Strategic Reserve Fund sourced from crypto that is seized, confiscated, or surrendered to the state. - Mandate: The state treasurer could hold, invest, and loan these assets each fiscal year, provided any arrangement “does not increase any financial risks to this state.” - Custody rails: Assets must sit with a qualified custodian—defined as a federally or state-chartered bank, trust company, or special purpose depository institution—or in an exchange-traded product approved by the SEC, the CFTC, or Arizona’s Department of Insurance and Financial Institutions. - Eligibility: Beyond Bitcoin, the bill names Digibyte, XRP, stablecoins, and NFTs as eligible. It also ties inclusion to a “cryptocurrency fair value score” of at least 1% of a “digital gold standard benchmark,” a threshold established when Bitcoin’s market price hit $100,000 per coin.

Why the seizure-funded model matters This bill doesn’t tap general fund dollars; it systematizes the management of assets Arizona already touches through forfeiture. That framing is the political swing. Governor Katie Hobbs vetoed a near-identical measure in 2025 and previously rejected: - SB 1373, which similarly pursued a reserve built from seized crypto, arguing volatility made crypto a poor fit for general funds. - SB 1025, the Arizona Strategic Bitcoin Reserve Act, which would have allowed up to 10% allocations by treasurers and retirement systems to Bitcoin and other digital assets. - SB 1024, enabling crypto payments for taxes and fees, citing residual risk. - HB 2324, a Bitcoin reserve seeded by criminal forfeiture, warning it could reduce local law enforcement’s incentive to cooperate by centralizing seized assets at the state level.

SB 1649 attempts to thread that needle with two levers: strict custody rails and a pledge not to heighten state financial risk. In practice, that promise will live or die on implementation details:

- Custody architecture: Using regulated banks, trust companies, or SPDIs reduces key custody and operational risks, but the inclusion of approved ETPs introduces basis and tracking considerations—especially if the fund lends underlying tokens while holding ETP exposure elsewhere. Clarity on rehypothecation limits, segregation, and audit cadence will matter.

- Lending discipline: “Loan” sounds attractive for incremental yield, yet lender protections, collateral quality, and liquidation mechanics define the true risk. A conservative, overcollateralized structure with transparent counterparty limits can align with the bill’s no-added-risk standard; anything looser erodes that assurance quickly.

- Asset mix: Grouping BTC, XRP, Digibyte, stablecoins, and NFTs under one reserve umbrella creates liquidity asymmetry. Stablecoins offer low-volatility utility but introduce issuer and reserve-transparency risk. NFTs are idiosyncratic and thinly traded; forcing them into a treasury-style return mandate risks marking policy to hype cycles. A tiered risk bucket approach would keep the fund coherent.

- Eligibility rule set: Tying inclusion to a “fair value score” and a benchmark anchored to Bitcoin’s $100,000 print is an unusual policy artifact. It reads as a nod to market share and liquidity, but it is static and price-path dependent. If not periodically reviewed, this could either ossify the list or invite borderline assets with insufficient depth.

The politics remain the variable. The bill advanced on a down day for crypto, which slightly strengthens the “risk awareness” narrative, but the Governor’s prior objections centered on volatility, general fund exposure, and law enforcement incentives. SB 1649’s use of seized assets addresses the first two at face value; the third still requires careful revenue-sharing or credit back to local jurisdictions to avoid friction.

If this passes the Senate, then the House, and reaches the Governor’s desk, the success of the model will hinge on whether the treasurer codifies institutional-grade risk limits—counterparty caps, liquidity buffers, and stress testing—before the first loan is struck. Without that, the promise to avoid increasing financial risk is only words.