How would
a US bitcoin strategic reserve work?
By Gertrude
Chavez-Dreyfuss and Lisa Pauline Mattackal
December 17,
20249:22 PM GMT+1Updated 25 days ago
https://www.reuters.com/technology/how-would-us-bitcoin-strategic-reserve-work-2024-12-16/
WASHINGTON,
Dec 17 (Reuters) - Bitcoin hit a record high above $107,000 on Monday after
President-elect Donald Trump reiterated plans to create a U.S. bitcoin
strategic reserve, stoking the enthusiasm of crypto bulls. Here's how the plan
could work.
WHAT IS A
STRATEGIC RESERVE?
A strategic
reserve is a stock of a critical resource which can be released at times of
crisis or supply disruptions. The best-known example is the U.S. Strategic
Petroleum Reserve, the world's largest supply of emergency crude oil, which was
created by an act of Congress in 1975 after a 1973-74 Arab oil embargo
throttled the U.S. economy. Presidents have tapped the stockpile to calm oil
markets during war or when hurricanes hit oil infrastructure along the U.S.
Gulf of Mexico.
Canada has
the world's only strategic reserve of maple syrup, while China has strategic
reserves of metals, grains and even pork products.
HOW WOULD A
U.S. STRATEGIC BITCOIN RESERVE WORK?
Analysts and
legal experts are divided on whether Trump could use his executive powers to
create the reserve, or whether an act of Congress would be necessary. Some have
argued Trump could create the reserve via an executive order directing the U.S.
Treasury's Exchange Stabilization Fund, which can be used to purchase or sell
foreign currencies, and to also hold bitcoin.
The reserve
could include bitcoin that the government has seized from criminal actors. That
stands at around 200,000 tokens, worth about $21 billion at the current price,
according to bitcointreasuries.net. Trump suggested in a July speech unveiling
his bitcoin reserve plan that this stockpile could be the starting point,
although it remains unclear what the legal process would be for moving them out
of the Justice Department.
Trump has
not said if the government would add to that stockpile by buying more bitcoin
in the open market. To do that, the government may have to issue debt, although
some proponents of a bitcoin reserve say the United States could sell some of
its gold reserves and use the proceeds to buy bitcoin.
Currently,
the most concrete bitcoin reserve proposal circulating in Washington comes from
pro-crypto Republican Senator Cynthia Lummis, who personally holds five
bitcoins, she told CNBC last month. In July, she introduced a bill, yet to gain
traction, that would create a reserve operated by the Treasury.
The bill
envisages that the Treasury would create a program to buy 200,000 bitcoins
annually for five years until the stockpile hit one million tokens. This would
represent about 5% of the total global supply of bitcoin of around 21 million.
The Treasury would fund the purchases with profits on Federal Reserve banks'
deposits and gold holdings.
The bitcoin
reserve would subsequently be maintained for a minimum of 20 years.
WHAT ARE THE
BENEFITS OF A BITCOIN RESERVE?
In his July
speech, Trump suggested a bitcoin reserve would help the U.S. dominate the
global bitcoin market in the face of growing competition from China.
Other
proponents argue that by holding a stockpile of bitcoin, which they say is
likely to continue appreciating over the long term, the U.S. could reduce its
deficit without raising taxes, strengthening the U.S. dollar.
In November,
Lummis told Fox Business that her plan would allow the United States to cut its
debt in half in 20 years. "What that does is help us protect ourselves
against inflation and protect the U.S. dollar on the world stage," she
said.
A strong
dollar would in turn give the United States more leverage over foreign
adversaries like China and Russia, proponents say.
WHAT ARE THE
RISKS?
Crypto
skeptics say that, unlike most other commodities, bitcoin has no intrinsic use
and is not crucial to the functioning of the U.S. economy.
Created in
2008, bitcoin remains too young and volatile to presume its value will continue
to rise in the long term, while crypto wallets remain notoriously vulnerable to
cyber attacks, they also argue. And given its volatility, any government
purchases or sales could have an outsized impact on bitcoin's price.
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Writing by
Michelle Price; additional reporting by Hannah Lang; Editing by Rosalba O'Brien
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