Bitcoin prices have surged throughout 2024, fueled in part by President-elect Donald Trump’s commitment to fostering a cryptocurrency-friendly administration. Among his ambitious plans is the idea of creating a bitcoin strategic reserve to bolster U.S. leadership in the global digital asset space. While details remain limited, Trump’s statements and related proposals have sparked debate about the viability and implications of such a move.
The Concept of a Bitcoin Reserve
The United States currently holds nearly $20 billion worth of bitcoin seized through legal actions, according to Arkham Intelligence. Traditionally, federal officials sell confiscated cryptocurrency, but Trump has proposed halting these sales to maintain a “core” bitcoin stockpile.
“For too long, our government has violated the cardinal rule that every bitcoiner knows by heart: Never sell your bitcoin,” Trump stated in July.
Proponents argue that retaining this reserve could keep bitcoin prices elevated, indirectly benefiting current investors and maintaining stability in the volatile cryptocurrency market. Some have drawn comparisons to the nation’s gold and oil reserves, suggesting that a bitcoin reserve could become a similarly vital national asset.
How It Could Work
Establishing a strategic bitcoin reserve would involve halting future bitcoin selloffs, a relatively simple step that falls within the president’s authority. However, funding a reserve through active acquisitions would require Congressional approval. One proposal, introduced by Republican Sen. Cynthia Lummis of Wyoming, suggests acquiring 1 million bitcoin—around 5% of all outstanding tokens—over time and holding them for at least 20 years.
To fund this initiative, Lummis proposed revaluing $11 billion in gold certificates on the Federal Reserve’s balance sheet. She argued that such a reserve could help reduce the $36 trillion national debt while providing a long-term, stable store of value.
However, critics have raised concerns about the risks involved. Bitcoin’s historical price volatility, susceptibility to cyberattacks, and potential taxpayer losses in the event of market downturns make the proposition contentious.
Competing on the Global Stage
Advocates of a U.S. bitcoin reserve highlight its potential to cement the nation’s leadership in the digital asset space, especially as other countries increase their holdings. For instance, China, the United Kingdom, Ukraine, Bhutan, and El Salvador have collectively amassed billions of dollars in bitcoin, according to BitcoinTreasuries.
“We don’t want China or anyone else to lead in this space,” Trump said in a recent interview. “We want the United States to be at the forefront of this revolution.”
Critics, however, suggest that a regulatory framework for cryptocurrencies would have a more significant impact on the U.S. economy than holding a volatile digital asset in reserve. Michele Neitz, director of the Center for Law, Tech, and Social Good, emphasized the importance of clarity and consistency in crypto regulations.
Federal Reserve and Legislative Challenges
Federal Reserve Chair Jerome Powell has made it clear that the central bank is not considering holding bitcoin. “The Federal Reserve Act dictates what we can own, and bitcoin is not on that list,” Powell said during a press conference. “This is a matter for Congress to deliberate, not the Fed.”
Analysts like Owen Lau from Oppenheimer & Co. believe that creating a bitcoin reserve is unlikely to gain widespread support in Congress, particularly if it involves issuing new Treasury debt. A Barclays analysis also noted potential resistance from the Federal Reserve to such a plan, given the economic risks and logistical complexities.
Risks and Rewards
While a bitcoin reserve could elevate the U.S. as a leader in cryptocurrency, critics warn of the potential downsides. Bitcoin’s value has historically been volatile, with sharp declines such as the 70% drop between November 2021 and November 2022. Additionally, the security of crypto wallets remains a significant concern.
“If bitcoin appreciates, the government and taxpayers stand to benefit. But if it depreciates, the taxpayer bears the loss,” Lau cautioned.
The Road Ahead
As the incoming administration explores this idea, the debate surrounding a bitcoin strategic reserve highlights the broader question of how the U.S. should engage with cryptocurrencies. Whether through direct holdings, regulatory clarity, or other measures, the nation’s approach to digital assets will likely shape its economic and technological trajectory for decades to come.
