SECTION 1. The General Laws are hereby amended by inserting after chapter 64N the following new chapter:-

  CHAPTER 64O. Taxation and Investment in Digital Financial Assets

  Section 1. Intent

  (a) It shall be the intent of the General Court to authorize the state treasurer and public pension funds to:

  (i) permit the inclusion of bitcoin and other stable digital financial assets to serve as stores of value and provide a hedge against inflation, thereby protecting the purchasing power of state funds;

  (ii) ensure that the investment strategies employed by the state treasurer and public pension funds are aligned with the goal of enhancing the economic security and financial resilience of the commonwealth; and

  (ii) allow flexibility in investment decisions to respond to changing economic conditions and emerging opportunities that may offer better protection or returns on state funds.

  Section 2. Definitions

  As used in this chapter, the following terms shall have the following meanings unless the context clearly requires otherwise:

  "Bitcoin", the decentralized digital currency launched in 2009, a digital asset which is the basis of the Bitcoin exchange traded product which is regulated by the federal securities and exchange commission.

  "Digital financial asset", any digital representation of value that is recorded on a cryptographically secured distributed ledger of virtual currency, cryptocurrencies, natively electronic assets including stablecoins and non-fungible tokens or other exclusively digital assets that confer economic, proprietary or access rights or powers that are not cash; provided, however, that for the purposes of taxation pursuant to sections 58 to 65C, inclusive, digital assets shall be considered a cash equivalent.

  "Exchange-traded product”, any financial instrument that is approved by the federal securities and exchange commission, the federal commodities future trading commission,or the division of banks that is traded on a United States regulated exchange and derives its value from an underlying pool of assets, such as stocks, bonds, commodities or indexes.

  “Private key”, a unique element of cryptographic data used for signing transactions on a blockchain, which is known to the owner of the private key.

  “Qualified custodian”, any federal or state-chartered bank, trust company or special purpose depository institution or a company regulated by the state which custodies digital assets for an approved exchange-traded product.

  “Secure custody solution”, a technological product or blended product and service which has the following characteristics:

  (1) The cryptographic private keys that secure digital assets are exclusively known by and accessible by a government entity;

  (2) the cryptographic private keys that secure digital assets are exclusively contained within an encrypted environment and accessible exclusively via end-to-end encrypted channels;

  (3) The cryptographic private keys that secure digital assets are never contained by, accessible by, or controllable via a smartphone;

  (4) Any hardware that contains the cryptographic private keys that secure digital assets is maintained in at least 2 geographically diversified and specially designated secure data centers;

  (5) The secure custody solution enforces a multi-party governance structure for authorizing transactions, enforces user access controls and logs all user-initiated actions;

  (6) The provider of the secure custody solution has implemented a disaster recovery protocol that ensures customer access to assets in the event the provider becomes unavailable; and

  (7) The secure custody solution undergoes regular code audits and penetration testing from audit firms; provided, however, that any identified vulnerabilities shall be promptly remedied.

  Section 4. Application and investment

   (a) The state treasurer may invest public funds in Bitcoin from the following funds:

  (1) The General Fund;

  (2)  The Commonwealth Stabilization Fund established pursuant to section 2H of chapter 29;

  (3) The State Retiree Benefits Trust Fund established pursuant to section 24 of chapter 32A; or

  (4) Any other state fund deemed appropriate as requested by the state treasurer and approved by the General Court.

  (b)  The amount of public funds that the state treasurer may invest in Bitcoin shall not exceed 10 per cent of the total amount of public funds in the applicable account.

  (c)  Any digital assets acquired by any of the funds listed in subsection (b) shall be held: (i) directly by the state treasurer through the use of a secure custody solution; (ii) on behalf of the state by a qualified custodian; or (iii) in the form of an exchange-traded product issued by a registered investment company.

  SECTION 2. Section 1 shall take effect upon enactment.