California's Public Pension Funds Take a Chance on Cryptocurrencies

California's public pension systems are increasingly investing in cryptocurrencies, despite their volatile nature. CalPERS and CalSTRS, the two largest public pension funds in California, hold significant amounts of crypto-linked assets. These investments are made through equity holdings in companies like Coinbase and Strategy, which generate revenue from trading and other services.

While the total value of these investments is relatively small, about 0.03% of the pension funds' total assets, it's the lack of transparency and risk management that's causing concern. The pension funds do not need new laws or explicit authorization to invest in crypto, but they should be more transparent about their exposure.

The risk associated with cryptocurrencies is significant due to their extreme volatility and vulnerability to regulatory shocks. Companies like Strategy amplify these dynamics by layering leverage on top of already volatile underlying assets. To protect taxpayers, CalPERS and CalSTRS need to be more systematic in disclosing the risks they're taking.