U.S. Bitcoin Strategic Reserve: What Is It and How Does It Work?
Last year on the campaign trail,
President-elect Trump promised to establish a “strategic national
Bitcoin reserve.” He confirmed this intention after winning the election, much
to the delight of cryptocurrency enthusiasts worldwide.
In a recent interview
with Bloomberg TV, Binance CEO Richard Teng discussed what US regulations and
a crypto reserve could mean for markets, “The year ended with the election of a
pro-crypto president, President Trump, and that gave good optimism into this
space. And I predict it’s going to be the start of the golden era of crypto. I
think that momentum continues.”
Teng added, “If you look at the past four
years under the Biden administration, Operation Choke Point was in progress. So
there was a bit of oppression in the US, and US players, global crypto players
were facing great uncertainty and governments around the world were not very
supportive of crypto. I think we have a fresh reset, restart now. Since
President Trump’s election, actually, we have [been approached] by governments
all around the world to say, ‘Hey, we want to look at this space now, by virtue
of the fact that the US has appointed an AI and crypto czar represents that
these are the two most important industries to support all future economies
around the world. We are seeing fresh optimism, governments around the world
are supporting it.”
Before anyone celebrates an apparent crypto
market victory, however, it’s crucial to understand what a Bitcoin strategic
reserve would be and how it might work. This is uncharted territory for the
U.S., after all, and there could be far-reaching implications if the Trump
administration does, in fact, build such a reserve.
It’s Like the Oil Reserve… but Different
Not long ago, the idea of America setting
up a federal Bitcoin reserve may have seemed far-fetched. With Trump’s
re-election, though, the doors are open to new, crypto-friendly ideas in
Washington. Binance CEO Richard Tengs envisions President-elect Trump’s second
presidential term as the “golden era” for cryptocurrency, and this era could
include a national Bitcoin reserve.
Granted, it’s not unprecedented for the
U.S. government to establish asset reserves, be they “strategic” or not. Fort
Knox has held gold for many generations, for example.
Perhaps a closer analogue to a proposed
U.S. Bitcoin strategic reserve, however, might be America’s store of oil. This
is known as the Strategic Petroleum Reserve (SPR),
and it’s been around since the Arab oil embargo of 1973 to 1974.
There’s nothing overly complicated about
the SPR; it’s really just the U.S. government’s stockpile of crude oil. A
national strategic Bitcoin reserve would, in theory, work the same way but with
a stockpile of Bitcoin instead of petroleum.
A Bitcoin reserve would certainly work
differently than an oil stockpile, though. Instead of barrels of crude oil
taking up physical space, a Bitcoin reserve would only include digital assets –
and the hardware required to maintain the digital ledger on which those digital
assets would be recorded.
Then, there would be the required use of
electricity. Critics of a national Bitcoin reserve might argue that it would be
environmentally impactful, much like oil.
On the other hand, much like the SPR, a
Bitcoin reserve could help the nation prepare for a shortage. And make no
mistake about it – there is a shortage of Bitcoin by its very design, since it
was coded such that there will every only be 21 million Bitcoins in existence.
Looking to El Salvador for Clues
While a national strategic Bitcoin reserve
would be unprecedented in the U.S., it wouldn’t be a first on a global scale.
That’s because there’s already a government Bitcoin reserve in El Salvador,
which at one point reportedly held 5,500 Bitcoins.
This experiment seems to have worked out
well for El Salvador, so far. After establishing the Bitcoin reserve, El
Salvador more than doubled the value of its investment. This success has led to
Tether, the company behind the USDT stablecoin, to move its headquarters from the British Virgin
Island to El Salvador after the company secured a Digital Asset Service
Provider license.
Bear in mind, however, that while El
Salvador considers Bitcoin an official currency, it also uses the U.S. dollar
as its main currency. Moreover, the dollar is widely considered a go-to vehicle
for international trade.
So, El Salvador won’t likely “ditch the
dollar” anytime soon, and nor will the U.S. even if it establishes a Bitcoin
reserve. Nevertheless, if the Trump administration seeks to bolster the nation
against dollar inflation down the road, it might choose to start stockpiling
Bitcoin in 2025.
The Logistics Remain Unclear
Blockchain believers may envision a massive
Bitcoin reserve somewhere near the White House or Capitol Hill, or perhaps in
tech-centric Silicon Valley. Beyond the fantasies, however, there lies ahead a
real-world path to a national strategic Bitcoin reserve that’s neither clear
nor easy.
Experts remain divided on whether Trump would need
Congress’s approval to establish a U.S. Bitcoin reserve, or whether it could
realistically be achieved via an executive order. Then, there’s a question of
how the government would source the Bitcoins to populate the reserve.
There’s been talk of seizing $21 billion
worth of Bitcoins from criminals, as well as chatter of the U.S. Treasury
buying 200,000 Bitcoins per year until the prospective strategic reserve held 1
million Bitcoins. All of this is in the “proposal phase” for now.
Finally, it’s difficult to predict how the
government would handle the extreme price moves that Bitcoin is subject to. How
would the three branches of government deal with crypto’s inevitable flights of
volatility?
As you can see, there are more questions
than answers in early 2025 regarding the specifics of a prospective U.S.
Bitcoin strategic reserve. It’s a story that’s still in its earliest chapters,
but could impact America’s financial future for years to come.
This article was written by FM Contributors at www.financemagnates.com.