Kentucky Embraces Cryptocurrency with New Self-Custody Law

In a significant step toward supporting cryptocurrency adoption, Kentucky Governor Andy Beshear signed House Bill 701 into law on March 24, 2025, bolstering protections for individuals who choose to self-custody their Bitcoin and Ethereum.

This legislation, which sailed through the state’s House with a unanimous 91-0 vote on February 28 and the Senate with a 37-0 vote on March 13, underscores Kentucky’s commitment to fostering a crypto-friendly environment. The law ensures that Kentuckians can maintain full control over their digital assets without fear of undue interference, marking a milestone for cryptocurrency enthusiasts in the state.

Self-custody, at its core, means holding the private key to a crypto wallet (address), giving users complete authority over their funds. This approach mirrors carrying cash in a physical wallet rather than relying on a bank to facilitate transactions. While this autonomy offers freedom, it also places the burden of security squarely on the individual.

A striking example is a man from Wales who has spent over a decade seeking permission to dig through a landfill to recover a hard drive containing 8,000 Bitcoin—now valued at $696 million. Kentucky’s new law acknowledges these risks and rewards, affirming the right of residents to manage their digital wealth as they see fit.

A Broader Vision for Cryptocurrency in Kentucky

Beyond self-custody protections, the legislation clarifies that rewards from Bitcoin mining, crypto mining, and staking do not qualify as securities, a move that alleviates regulatory uncertainty for participants in these activities. It also exempts operating blockchain nodes and staking from the state’s money transmitter regulations, further encouraging grassroots engagement with cryptocurrency networks. Local governments, meanwhile, are barred from imposing discriminatory restrictions on crypto mining operations, ensuring a level playing field for those powering the blockchain.

Kentucky’s forward-thinking approach doesn’t stop there. The state is also reviewing House Bill 376, which proposes establishing a cryptocurrency reserve. If passed, this would permit the investment of up to 10% of excess state reserves into digital assets boasting a market cap of at least $750 billion. This potential reserve signals Kentucky’s interest in not just protecting crypto users but also integrating digital assets into its financial strategy.

The move aligns with a broader trend across the United States, where a growing number of states are exploring cryptocurrency’s role in public funds. Roughly a third of states are currently engaged in legislative discussions about crypto allocations. Utah, for instance, passed a bill on January 28, 2025, authorizing its state treasurer to invest up to 5% of specific public funds into qualifying digital assets with a market cap exceeding $500 billion over the past year. Similarly, New Mexico’s Senator Anthony L. Thornton introduced the Strategic Bitcoin Reserve Act on February 4, proposing a 5% allocation of public funds to Bitcoin.

As of now, the Bitcoin Reserve Monitor tracks 16 states actively considering such measures. However, enthusiasm for crypto reserves remains tempered, with most proposals capped at 10% of funds and a majority of states still opting to steer clear of digital asset investments. States like Montana, North Dakota, Wyoming, and Pennsylvania have already dismissed efforts to convert tax dollars into Bitcoin, reflecting a cautious approach amid the broader push for adoption.

Kentucky’s latest law, paired with its exploration of a crypto reserve, positions the state as a leader in the evolving landscape of digital finance. By safeguarding self-custody rights and fostering a regulatory environment conducive to blockchain innovation, Kentucky is carving out a distinct path—one that could inspire other states to follow suit.