Federal Reserve Chair Jerome Powell unequivocally stated on Wednesday that the U.S. central bank has no intention of participating in any government initiative to accumulate large quantities of Bitcoin. Speaking at a press conference following the Fed’s two-day policy meeting, where policymakers cut interest rates as anticipated but signaled uncertainty about future monetary policy, Powell declared, “We’re not allowed to own Bitcoin.”
Addressing the legal aspects of holding Bitcoin, Powell emphasized that any such considerations would fall under the purview of Congress. “That’s the kind of thing for Congress to consider, but we are not looking for a law change at the Fed,” he stated. Powell’s remarks directly addressed speculation surrounding the potential for central bank involvement in establishing a Strategic Bitcoin Reserve under the incoming Trump administration.
These comments noticeably impacted Bitcoin’s value, which had surged alongside other cryptocurrencies following Trump’s election victory. The rally was fueled by expectations of a less regulatory government approach toward crypto assets, primarily used for speculation rather than as a functional currency.
President-elect Trump has proposed the creation of a U.S. Bitcoin strategic reserve, an idea widely criticized in Europe. While details remain scarce, Trump suggested the reserve could initially consist of Bitcoin seized from criminal activities, estimated at around 200,000 tokens, currently valued at approximately $21 billion.
Bitcoin’s value has more than doubled this year, exceeding $100,000, driven by optimism surrounding Trump’s perceived pro-crypto stance. However, the asset’s historical volatility raises concerns about its suitability as a store of value or medium of exchange, crucial characteristics of a reserve currency.
Senator Cynthia Lummis (R-WY) has introduced legislation proposing the annual purchase of 200,000 Bitcoins by the U.S. Treasury, continuing until the reserve reaches one million tokens. The purchases would be financed through Fed bank deposits and gold holdings.
A recent Barclays analysis suggests that funding a strategic Bitcoin reserve would likely require Congressional approval and the issuance of new Treasury debt. The analysts predict significant resistance from the Fed given the potential mechanisms for establishing such a reserve.
European Resistance to Bitcoin Reserves and Broader Skepticism
Beyond the specific proposal for a Bitcoin reserve, Fed officials have generally expressed skepticism toward cryptocurrencies. They have also shifted away from pursuing a fully digital dollar, preferring to allow private sector innovation in payment technologies.
The Fed’s primary focus regarding cryptocurrencies appears to be their potential impact on consumer and banking sector stability. “We regulate and supervise banks and we would want the interaction between the crypto business and the banks … not to threaten the health and well-being of the banks,” Powell stated on December 4th. He clarified, however, that the Fed does not directly regulate crypto assets.
Echoing these concerns, Claudia Buch, the European Central Bank’s chief bank supervisor, recently highlighted risks associated with the crypto market, including “excessive leverage, intransparency (and) conflict of interest.” She emphasized close monitoring of banks’ exposure to these assets.
Despite these reservations, Trump intends to appoint former PayPal executive David Sacks as White House AI and Crypto Czar and pro-crypto consultant Paul Atkins to head the Securities and Exchange Commission.
Meanwhile, several European central bankers have firmly rejected the notion of Bitcoin becoming a reserve asset. Pierre Wunsch, governor of Belgium’s central bank, stated there is little “appetite for having reserves in Bitcoins.” Outside the eurozone, Hungary’s governor-designate Mihaly Varga cited cryptocurrency volatility as a major obstacle.
ECB policymaker Olli Rehn summarized the prevailing European view: “We are following the discussion, especially in the U.S. post-elections, closely…But our view has not changed. Cryptos are assets, but they are not currency.”
In conclusion, while the incoming Trump administration has signaled a potential interest in exploring a strategic Bitcoin reserve, the Federal Reserve and European central banks remain firmly opposed to the idea, citing legal constraints, volatility concerns, and broader skepticism toward cryptocurrencies as viable reserve assets. The future of Bitcoin’s role in global finance remains uncertain, with significant regulatory and practical hurdles to overcome.
