Bitcoin’s price surge this year is partly attributed to President-elect Donald Trump’s pro-cryptocurrency stance, including his plans for a potential national stockpile. This article delves into Trump’s vision for a bitcoin reserve, its potential implications for taxpayers, and the ongoing debate surrounding its feasibility and risks.
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Former President Donald Trump speaks at the 2024 Bitcoin Conference in Nashville, Tennessee.
The Mechanics of a Bitcoin Stockpile
The US government already possesses nearly $20 billion in bitcoin seized through legal proceedings, according to Arkham Intelligence. While these holdings are occasionally liquidated, Trump advocates halting future sales to establish a substantial bitcoin reserve. He believes this strategy would transform bitcoin into a “permanent national asset” benefiting all Americans, positioning the US as a global leader in the cryptocurrency arena.
“For too long, our government has violated the cardinal rule that every bitcoiner knows by heart: Never sell your bitcoin,“ Trump stated in July. This year alone, bitcoin’s value has more than doubled. By refraining from further sales, the US could potentially maintain upward price pressure, benefiting existing investors.
“Constraining supply in the real-time market helps prevent price suppression,” explains Seoyoung Kim, finance professor at Santa Clara University and author of “DeFi For Dummies.”
Beyond Holding: The Case for a Strategic Bitcoin Reserve
Some proponents advocate for a more proactive approach – establishing a strategic bitcoin reserve akin to the nation’s gold and oil reserves. Senator Cynthia Lummis of Wyoming has proposed legislation to acquire 1 million bitcoin (approximately 5% of the circulating supply) over time, held for a minimum of 20 years. This acquisition would be financed by revaluing around $11 billion in gold certificates on the Federal Reserve’s balance sheet.
Senator Cynthia Lummis (R-WY) speaking at the Bitcoin Conference 2023 in Miami Beach, Florida.
Lummis argues that a bitcoin reserve could reduce the national debt and bolster the US dollar. “Despite potential short-term volatility, a long-term bitcoin reserve would provide a stable store of value,” she asserted in a Wall Street Journal article.
Trump echoes this sentiment, suggesting that a bitcoin reserve is crucial for competing with other nations in the cryptocurrency space. “We’re going to do something great with crypto… we want to be the head,” he told CNBC. Countries like China, the United Kingdom, Ukraine, Bhutan, and El Salvador already hold substantial bitcoin reserves.
However, some experts believe a strategic reserve isn’t necessary for US competitiveness. Michele Neitz, visiting professor at the University of San Francisco, contends that “regulatory clarity around digital assets would benefit the US economy more than holding a volatile asset in reserve.”
Risks and Challenges of a Federal Bitcoin Reserve
Creating a stockpile by simply halting bitcoin sales would be relatively straightforward for the president. However, establishing a strategic reserve requiring active buying and selling would likely necessitate Congressional approval, which is considered unlikely.
Federal Reserve Chair Jerome Powell speaking at a news conference.
Concerns exist regarding the vulnerability of crypto wallets to cyberattacks and bitcoin’s price volatility. While bitcoin is currently near record highs, it experienced a significant price drop of over 70% between November 2021 and November 2022.
“If bitcoin rises, there’s a benefit. If it falls, taxpayers bear the loss,” notes Owen Lau, senior analyst at Oppenheimer & Co. A Barclays analysis suggests that funding a bitcoin reserve might require issuing new treasury debt, potentially facing strong opposition from the Federal Reserve.
Fed Chair Jerome Powell has confirmed that the central bank is currently prohibited from owning bitcoin and is not seeking a legal change. He stated that such a decision rests with Congress. The debate surrounding a US bitcoin reserve continues, highlighting the complex interplay between cryptocurrency, national economic strategy, and regulatory considerations.
