WASHINGTON – On Monday, Bitcoin soared to a new high of over $107,000 following confirmation from President-elect Donald Trump that he intends to establish a strategic reserve for Bitcoin in the U.S., igniting excitement among cryptocurrency enthusiasts. Here we explore what this plan entails.
Understanding a Strategic Reserve
A strategic reserve is essentially a stockpile of essential resources held back for release during crises or when there are disruptions in supply. A well-known example is the U.S. Strategic Petroleum Reserve, the largest emergency crude oil reserve globally, established by Congress in 1975 following the 1973-74 Arab oil embargo that severely impacted the U.S. economy. This reserve has been used to stabilize oil markets during wars or natural disasters that affect oil infrastructure, particularly along the U.S. Gulf of Mexico.
Other countries maintain similar reserves for different resources; Canada has a strategic reserve of maple syrup and China holds reserves of metals, grains, and pork products.
Implementing a U.S. Strategic Bitcoin Reserve
There is ongoing debate among analysts and legal experts about whether President Trump could establish such a reserve using his executive powers or if it would require an act of Congress. Some suggest that Trump might be able to set up the reserve through an executive order leveraging the U.S. Treasury’s Exchange Stabilization Fund, which is traditionally used for dealing in foreign currencies and could potentially include Bitcoin.
The proposed reserve might start with the approximately 200,000 bitcoins already seized from criminal investigations, which have a current market value of around $21 billion, as per bitcointreasuries.net. In a speech in July, Trump hinted that these seized assets could initiate the reserve, though the legal procedures for transferring them from the Justice Department remain unclear.
Trump has not specified whether the government would expand this reserve by purchasing additional bitcoins on the open market. Such acquisitions might necessitate issuing government debt, although some proponents suggest the U.S. could alternatively sell some of its gold reserves to fund bitcoin purchases.
The most detailed proposal for a bitcoin reserve currently under discussion in Washington has been put forward by pro-cryptocurrency Republican Senator Cynthia Lummis, who herself owns five bitcoins. In July, she proposed a bill to establish a Treasury-operated reserve, though it has yet to gain significant support. Her bill proposes the Treasury buy 200,000 bitcoins annually over five years until the reserve reaches one million tokens, representing about 5% of Bitcoin’s global supply cap of approximately 21 million. The Treasury would finance these purchases with profits from Federal Reserve bank deposits and gold holdings, and maintain the reserve for at least 20 years.
Potential Benefits of a Bitcoin Reserve
In his July announcement, Trump argued that a U.S. bitcoin reserve could position the country as a leader in the global bitcoin market, especially against competitive pressures from China. Other advocates believe that holding bitcoin, which is expected to appreciate over time, could help the U.S. reduce its national deficit without needing to increase taxes, thus strengthening the U.S. dollar.
Senator Lummis suggested in a November interview with Fox Business that her plan could cut U.S. debt in half within 20 years. She claimed this strategy would guard against inflation and bolster the dollar’s global standing, providing the U.S. with greater leverage against international rivals like China and Russia.
Risks Involved
However, critics of cryptocurrency argue that bitcoin, unlike most commodities, lacks intrinsic utility and is not vital to the U.S. economy’s functioning. They point out that Bitcoin, established in 2008, is relatively young and too volatile to be a reliable long-term value store. Additionally, they caution that crypto wallets are highly susceptible to cyber-attacks. Given bitcoin’s price volatility, any significant government transactions could also dramatically influence its market price.
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Passionate about analyzing economic markets, Alice M. Carter joined THE NORTHERN FORUM with a mission: to make financial concepts accessible to everyone. With over 10 years of experience in economic journalism, she specializes in global economic trends and US financial policies. She firmly believes that a better understanding of the economy is the key to a more informed future.
